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Buying A Home
Buying a home for most people will be the largest investment they
make, but is also one of the best investments you can make because
of the equity you build by owning that home over a specific period
of time. Below are some frequently asked questions about
homeownership that can be useful in your search of finding the right
home for you.
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Is homeownership right for you?
Buying a home is the largest purchase most people will ever make.
Homeownership has great benefits. Homeownership also comes with
certain responsibilities.
Are you ready for homeownership? Look at your current situation and
determine if:
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How
much can you afford?
To get a quick idea of what you can afford to spend, multiply your annual
gross income (before taxes) by 3. For example, if your annual household
income is $100,000, you might be able to qualify for a $300,000 (plus your
down payment) home. This is
just a rough estimate - the actual number will vary based on factors such as
your debt and credit history.
Mortgage lenders typically use the housing expense and debt-to-income
ratios to more accurately determine how much you can afford to spend on your
mortgage.
 | Debt-to-Income Ratio: You need to factor your
other debts into determining an affordable monthly mortgage payment.
Mortgage lenders look at whether your total debt is larger than 30-40%
of your monthly gross income. Remember, debt is not just credit cards
and student loans. It can also include alimony, child support, car
loans, and housing expenses. |
A mortgage lender, a housing counselor, or consumer debt counselor can
help you better understand these guidelines. Before you talk to a
financial professional, you can organize your financial picture by creating
a budget. Don't forget that you also have to save for the down payment,
closing costs, inspection costs, moving, and other related expenses.
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What are the risks of
homeownership?
Overall, homeownership is a good investment for most people, but there
are risks. If you understand the benefits and risks of homeownership, you
can make the best decision about when to buy a home.
So what are the risks of homeownership?
| Monthly housing expenses can increase. Your
monthly mortgage payment may be larger than your rent. These higher
monthly payments may be offset by a tax benefit at the end of the year.
Talk to a tax professional to understand your particular situation.
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| You become your own landlord. If an appliance
breaks, you will have to pay for its repair or replacement. You are also
responsible for the maintenance and upkeep of your home and your
property.
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| Property values can depreciate. You can lose
value in your home for a number of reasons, such as a recession, the
condition of your home not being kept up, or a drop in a neighborhood's
home values. If your home loses value and you have to sell it for less
than you owe, you will be required to repay the full mortgage. |
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What type of home are you
looking for?
Before you start house hunting, decide on what you really need. Then list
the features that would be nice to have. Once you have a clear idea of what
you need as well as what you would like in a house, finding that house will
be much easier.
Be realistic. Looking for a home takes time, so focus on what's important to
you. After looking at lots of homes, the line between "I need a 4th
bedroom" and
"I want a 4th bedroom" can get very blurry.
Many people focus more on what they'd like to have instead of focusing on
what they actually need - that can mean they pass up a home that meets their
needs in hopes of finding one that meets their wants.
Ultimately, you should be able to find a home that is a blend of your needs
and wants.
To help keep your priorities in order, make a wish list and a must-have
list, and take them with you whenever you look at a house. Share them with
your real estate agent as well; he or she can search for homes based on your
list.
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What type of
neighborhood are you looking for?
When you can tell the difference between your housing wants and needs,
you'll probably have an easier time deciding what you want and need from a
neighborhood. Where you live is as important as the house you live in.
You may already have a good idea about the neighborhood you would like to
live in. Don't let that keep you from looking at other neighborhoods with
similar qualities. You might not be giving another area a chance - and you
might be passing up your dream house.
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Serving Chicago's North &
Northwest Suburbs!
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