7 homebuyer tips
In a recent article by June Walbert on military.com, she stressed the 7 things military personnel should consider before purchasing a home. While these considerations apply to members of the military, they should also be considered by anyone before jumping into the housing market.
Realize that purchasing a home has become a long-term investment in this economic market. It is much more difficult to purchase a property for 2-3 years (typical length of a military assignment) and turn around and sell it for a profit. However, if you are willing and able to purchase a property and hold onto it as an investment property for several years, given the dropping prices and interest rates, you may be able to make a profit several years down the road.
Determine your wants and needs from the home before you buy. For example, if you are married and have kids or plan on having kids or have pets, do you need a house with a yard? Do you like living in or near a large city, or do you prefer being in the suburbs? How long will you be at work on a weekly basis, and will you have enough time to maintain a home, or would condo living be more reasonable?
Do not let the low interest rates and low home prices force you into acting too quickly to purchase a property. Take some time to review your financial situation, including your credit score. Few people understand that the higher their credit score, the better their chances of obtaining a more favorable interest rate on their mortgage. Everyone is able to pull one free credit report on themselves each year on www.annualcreditreport.com. If there are any items that appear on your credit report that you dispute, it is always best to have them cleared up prior to applying for a mortgage.
Take an inventory of your financial situation and only purchase a home that you can afford. While every lender will make a determination of your debt-to-income ratio, it is not uncommon for a borrower to be told that they can take out and afford a higher mortgage than what they originally anticipated. Ideally, your debt-to-income ratio should be 36% or less. For example, if your gross monthly income is $4,000, you should pay out more than $1,440 towards all your debts (i.e. mortgage payment, car payment, grocery expenses, credit card bills, etc.
Take advantage of all tax benefits. As of now, the mortgage interest deduction is still in effect, and therefore is an added incentive to purchase a property. The way the mortgage interest deduction works is it reduces your taxable income by the amount you pay out each year in mortgage interest and property taxes. For example, if your gross yearly income is $50,000, and you pay $12,000 in mortgage interest and $2,500 in property taxes, your taxable income has been lowered to $35,500.
Make sure you set aside some funds for not only a down payment, but also to cover any expenses related to moving into your new home, including any closing costs to be paid at the time of settlement. In addition, depending on where you are moving from, it may be necessary to purchase items like furniture, a lawnmower, window treatments, etc.
Finally, if you are not certain that you are financially ready to purchase a new home, consider continuing to rent until you are able to set aside enough funds for a down payment and get your credit straightened out. Purchasers that bite off more than they could chew helped to cause the current housing crisis we are in, so it is always best to make sure you have everything in place before jumping into the housing market with both feet!