August 8, 2011
Buying a home with an FHA insured mortgage is an important investment, and many borrowers at the start of their journey not knowing whether they are ready for their entry into home ownership.
We’ve said time and again that the best course of action is to take the advice of financial experts who recommend preparing at least a year before making a full commitment to buy a home. But why is that recommended?
Some first time home buyers don’t understand the expenses connected to purchasing a home. The down payment required on FHA loans–3.5%– is the lowest you’re likely to find compared to conventional loans which often require 10% down or more. That down payment is only one of the expenses. There are closing costs, appraisal fees, and optional money-saving features like discount points.
In light of these expenses, it becomes more obvious why an FHA loan applicant should make a budget and start saving money at least 12 months in advance. Another reason to start preparing early? Learning how much available income may be needed to make a house payment. There are many online mortgage calculators that can help a borrower learn the true state of their finances and how much is needed to afford an FHA mortgage.
The Ginnie Mae page has a simple mortgage calculator that can help. It asks for your gross income, the total of your monthly credit card bills, car payment, and other monthly obligations.
Doing the math with a mortgage calculator can show you how much of your current debt you may need to trim before applying for an FHA mortgage loan. Can you afford a mortgage payment at your current level of financial commitment?
Could you change your debt levels over the coming year to make an FHA mortgage affordable? These are important questions that you can answer in the earliest stages of your path to owning a home–those answers can help you decide what to do next. Whether you need to work on lowering monthly obligations or simply begin saving for the down payment, doing the math as early as possible is a big help.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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