Buy or Rent: Five Ways to Know if You Can Get a Mortgage in the US
A young couple rushed to buy a house for $730, but now they can't sleep at night. About the 5-point checklist that will help you find out if you are really ready to buy a house, says Yahoo.
Ramit Sethi does not believe that buying a home is available to everyone. Sethi is a self-proclaimed personal finance consultant, but his background is in psychology and technology.
At its YouTube channel I Will Teach You To Be Rich Sethi is talking to a Seattle-based couple, Jonathan and Shalom, who just exchanged their $1800 monthly rent for a $4150 mortgage payment. As a result, according to Jonathan, he has panic attacks almost every night, and the couple argue over whether or not to buy furniture.
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According to Sethi, the couple was following a trend: they bought homes based on real estate marketing, not what they could afford. To avoid the same mistake, Sethi encourages first-time homeowners to answer a series of questions before buying.
Five questions to ask yourself before buying a home
Sethi lists five questions to help you determine if you're ready to buy a home. The answers may show that you need more.
1. Will you live there for more than 10 years?
Seti says buying a home should be treated as a long-term move. Why? Because the purchase is expensive and it takes time to recoup the sunk costs. These significant but often overlooked expenses include (but are not limited to) the cost of closing a real estate transaction, home improvement and relocation.
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2. Is your total monthly housing cost below 28% of your total monthly income?
Many lenders consider a mortgage affordable if the monthly payment is 28% or less of your monthly gross income. You may also hear it referred to as "front-end ratio".
But a figure of less than 28% does not guarantee that the house will be affordable to you. Even if the lender approves you, the mortgage may still be out of your budget. The lender's calculations will not include large non-debt related expenses such as childcare and groceries. In other words, do the math to make sure the mortgage fits into your overall budget.
3. Have you collected the 20% down payment?
“If you haven't saved up the 20% down payment, you're not ready to buy a house,” Sethi says. This figure, in addition to phasing out private mortgage insurance (PMI), shows that you're good at saving money, he says.
Buyers should keep in mind that you may be approved for a mortgage even if you save much less than 20%, but the more you save on your down payment, the better (and more affordable) your loan terms will be.
4. Will you be ok if the value of your home falls?
One of Setha's most helpful tips is don't assume your home's value will go up. Yes, according to the Federal Housing Finance Agency, houses are rising in price by an average of 4,3% per year. But growth isn't always linear, and unpredictable market trends (such as rising interest rates or an oversupply of affordable housing on the local market) can make it difficult to sell.
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5. Are you happy with your purchase?
Finally, Sethi advises stopping the process if you feel fear. Conducting an emotional and financial due diligence can be a daunting task, as falling in love with a home can cloud your judgment, and a certain amount of buyer remorse is inevitable.
And if you want to move for any reason other than a smart financial move that has many positives for you and your family, don't.
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