Debt-To-Income Ratio
A mortgage lender uses the debt-to-income ratio to determine if you can financially afford to make the monthly payments on the property you intend to take a mortgage loan out on. That said, Samantha Odo, a Licensed Real Estate Expert and the Chief Operating Officer of Precondo, suggests you don’t overextend yourself. “Buy what you can afford, not what the mortgage company tells you can. Be honest with yourself and visualize how you will be paying the mortgage installments in the future,” says Odo. Remember, it’s not merely about what lenders tell you; it’s also about how much you know you can afford. Nobody knows your finances better than you, so make sure you buy a home that won’t over extend your debt-to-income ratio.
The FHA sets its desirable debt to income ratio at 43%. This means that all of your housing-related expenses each month do not exceed 43% of your monthly income. Be aware that if your monthly expenses exceed this amount, you will have a more difficult experience securing a mortgage for the property.
Duration Of Stay
While often overlooked, the amount of time you plan to spend in the home is one of the most important factors to consider when buying. Essentially, does the duration of stay make it more economical to buy than rent? Of course, there is no simple answer to such a generic question. Each market is different and will require a subsequent analysis to determine if buying is the right choice. That said, it is entirely possible to predict whether or not the time you plan to spend in the house warrants its purchase. “On average, it takes four to seven years to break even on a home, where you’ve got enough appreciation where it can pay you back for the cost of the transaction and cost of ownership,” Fleming says. “If you’re thinking about buying a home, selling it in two years and think it’s going to be cheaper than renting, it’s very unlikely to be.”
Job Security
The expansion of the economy can improve employer sentiment. However, that does not mean that job security doesn’t weigh on the minds of those that are fortunate enough to be working. How could it not? We are still recovering from one of the worst recessions in American history. Trepidation abounds. Having said that, the last thing you want to think of when buying a home is job security. Uncertainty will almost certainly ruin any prospects of buying a home. There is perhaps nothing worse than buying a home, only to discover that you are unemployed shortly after. So before you make a 30-year commitment to mortgage premiums, make sure you are secure in your employment position.
Down Payment
The down payment on a purchase remains one of the biggest obstacles in the way of potential buyers. Millennials, in particular, have found it difficult to save up a lump sum of money. Not only did the millennial generation graduate from college during one of the worst recessions in American history, but they are also saddled with student loan debt. If that wasn’t enough, underwritings have become more difficult to work with, and rents have made it utterly impossible to save up enough money for a down payment. In a move to make down payments more “affordable,” both Fannie Mae and Freddie Mac have announced that they intend to back loans with down payments as low as three percent. Moreover, the Federal Housing Administration (FHA) plans to drop the premiums owed on mortgage insurance. The move could make owning a home much more affordable for buyers.
