Ready To Buy a House? 3 Questions To Ask Yourself.

Ready To Buy a House? 3 Questions To Ask Yourself.The “American Dream” that we are all encouraged to chase includes the purchase of your own home.

With mortgage interests rates still reasonably low, it seems like a great opportunity and you might be thinking that this is the right time for you to buy a house.

Of course, I believe that everyone should strive to reach the goal of home ownership.

As you consider this major decision here are a 3 questions to ask yourself to determine if the time to buy a house for you is now.

1. Are you on firm financial ground?

  • Are you completely debt free (credit cards, medical bills, student loans, car loans, etc.)?
  • Do you have an emergency fund of 3-6 months of expenses (preferably 6 months)?
  • Are you saving for retirement (15% of your annual household income) and for college expenses?

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2. Can you really afford to purchase a home?

  • Could you make the home purchase with a 15 year mortgage at a fixed interest rate?
    • Avoid mortgage loans with adjustable interest rates and balloon payments.
    • Remember, there is a large difference in interest paid between a 15 year loan and a 30 year loan over the life cycle of the mortgage.
  • Have you saved up for a down payment of between 15% and 20%? With a 20% down payment you will avoid paying for Private Mortgage Insurance (PMI) which protects the lender in case of default on the mortgage.
  • Will your monthly mortgage payment (taxes and insurance included) be equal or less than 25% (or 1/4) of your monthly take home pay? A mortgage payment that takes too much of your monthly take home pay will put a lot of strain on your budget.
  • If you want additional guidance on the process of getting a mortgage, this article from The Simple Dollar is a great resource.

3. What are your purchasing goals?

  • Have you made your list of “must have” elements vs. those which are “nice to have”? For example:
    • Do you need 4 bedrooms or could you be all right with 3?
    • What about bathrooms: is it 2 or 2.5?
    • What is more important to you: size or location?
    • What about the quality of the school district?
    • Make a list and evaluate the potential houses against that list.
  • Do you have to buy the first one you see?
    • Take your time when looking and guard against “house fever”.
    • For my first home purchase in 1996, I looked at around 25 houses.
    • For our second home purchase, my wife and I looked at 20 different homes.
    • There is no need to rush the decision on this investment which will be one of our largest purchases of your life.
  • Who is helping you?
    • It is a very big decision so you should seek professional help.
    • Secure the services of a good realtor that knows the area and has sold many houses and helped many buyers.
    • Interview 2 or 3 before you make the selection.

“Prepare your work outside; get everything ready for yourself in the field, and after that build your house.”
Proverbs 24:27 (ESV)

Refinancing Your Mortgage? 5 Things To Consider.

Refinancing Your Mortgage? 5 Things To Consider.Have you been thinking about refinancing your mortgage?

It is still a great time to do this as mortgage rates continue to be at reasonable levels.

It is also a good opportunity for home owners who are upside down on their mortgages.

According to Yahoo Finance, “the revised Home Affordable Refinance Program, or HARP 2.0, allows refinances for homeowners who owe more than their homes are worth, regardless of how deeply underwater they are.

More information on the HARP 2.0 Program can be found here: www.harpprogram.org.

Last year we took advantage of these low interest rates to refinance our mortgage and I am very glad we did it.

Of course, I only recommend taking on a mortgage for no longer than 15 years and only with a fixed interest rate.

So yes, it is a great time for refinancing your mortgage and here are 5 things to consider as you make this move:

1. Should you Refinance?

Of course with the low interest rates, you can save a lot of money on interest and also pay off your mortgage earlier.

However, refinancing only makes financial sense if you intend to stay in the home long enough to recover the closing costs.

For example, let’s say you have a $200K mortgage at 4%. If you get a new mortgage at 3%, you would save $2,000 per year in interest.

If your closing costs are $4,000, you would need to stay in the home 2 years to recover your closing costs.

2. Check your Credit Report.

The first step any mortgage lender will take is to run a credit check.

Any negative or incorrect entries in your report could cause delays in your refinance process.

Take time to check it and take action to resolve any issues.

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3. Prepare for A Home Appraisal and Credit.

The mortgage lender will require a full credit report including your FICO scores. You will pay for the cost of this report.

The lender will also require an appraisal of your home. Costs for an appraisal can run between $300-500.

You will be expected to cover this cost as well before the refinance is processed.

Be prepared to share any home improvements you have made since you purchased the house with the appraiser.

4. Prepare your Documentation.

The lender will also require certain information such as W2 statements for the last 2 years, bank statements for all of your accounts for the last 2 months, and payment stubs from your last 2 pay periods.

Be ready to provide these documents quickly to avoid any delays.

5. Communicate

Mortgage lenders are dealing with a large volume of refinance requests due to the low rates.

Stay in contact with your lender to make sure they have all the documentation they need and that the refinance is progressing normally.

Just like with anything else that involves your money, you need to stay on top at all times.

Have you thought about refinancing your mortgage? What has been your experience? What other reminders would you add to the list?