Buying a home is the biggest financial decision in most people lives. In Orange County, where home prices tend to be higher than other parts of the country, the decision to buy a home priced anywhere from $300,000 to $1,000,000 or more can cause a serious amount of stress. But by understanding the Four Financial Keys to buying a home, much of the stress can be alleviated.
Four Financial Keys to Buying a Home
- Know your budget. Many times home buyers don't have their current household budget under control. Knowing how much is being spent on everything including dining, entertainment, education, vacations, groceries, child care, retirement and college planning, etc is extremely important. Look at your gross income and then net income after income taxes. How much of a new mortgage payment, including property taxes and insurance, can you truly afford comfortably. Owning a home provides certain income tax breaks which will improve most people's "net income" after taxes. You may need to consult with your accountant to see how much of a benefit this will be. Make sure that the home purchase and resulting payment will not cause stress that will be difficult to live with.
- Know how much money you have available for the home purchase and how much you will need. Will your down payment be coming from the sale of your current home? Then you'll want to talk to a real estate agent to get an estimate of what your home may sell for and how much you'll receive from the sale after paying off the current loan, closing costs, commissions, etc. Will your down payment come from your retirement plan, ie. 401k? How long will it take to have the funds available and will there be a penalty? You will want to consult with an Orange County Loan Officer experienced in working with home buyers and who can provide loan scenarios with several possibilities depending on how much money is available.
- Know the status of your credit and FICO score. You will want to check your credit, either by consulting with a loan officer or by going to a site like www.annualcreditreport.com. Make sure there are no surprises on your credit. It is not unusual for mistakes to appear on a credit report and being able to clear mistakes on the credit report BEFORE making an offer on a home will put you in a much better position than someone who has not checked their credit ahead of time.
- Know what makes up a mortgage payment - the full PITI. Many people only look at the Principal and Interest. But the lender will also include the taxes and insurance into the payment for qualifying purposes. Also, if the buyer intends to have less than 10% down payment, or will be using the FHA or VA loan program, then taxes and insurance will be part of the monthly payment. Also, be aware of the need for mortgage insurance, depending on the loan program and down payment.
Getting PreApproved for a home loan will help the Orange County home buyer get a good handle on the Four Financial Keys to buying a home. You may need to talk with several loan officers before finding the right one, but a great loan officer should be able to listen to the home buyers needs and then prepare several custom loan scenarios. The loan scenarios should have a complete breakdown of the purchase price, loan amount, payment, closing costs and prepaid expenses, and an estimate of the amount needed to close. By having loan scenarios with this kind of detail at the very beginning of the home search process, the home buyer will have far more confidence in the fact that they are doing the right thing than a buyer who is "winging" it.
Authored by Tim Storm, a Orange County Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Team of WJ Bradley Mortgage Capital LLC. Direct line at 949-640-3102 for custom loan scenarios along with a custom Video explanation. www.OCHomeBuyerLoans.com