My husband and I are newlyweds and we are eager to buy our first home. He is convinced we can afford a newer, bigger home. I’m not so sure. We have good jobs, but I still have a student loan to pay off and we both have car loans. What steps do we take to determine how much house we can afford? Oh, and what’s private mortgage insurance?
Congratulations on your marriage! For a first-time home buyer, you’re asking all the right questions. To begin with, get a copy of your credit report. By law, you are entitled to one free copy of your credit report annually by asking one of the reporting agencies (Experion, Equifax, TransUnion). If the report shows any discrepancies, you should take care of those right away.
There are many on-line calculators use can use to determine how much how you can afford. We have one on our website. Be sure to create a list of all your regular monthly expenses as well as any quarterly, semi-annual or annual expenses. The process of writing it down often shows you where you can trim the fat. (Low-hanging fruit: expensive beverages, frequent salon visits, unused gym memberships.)
With your clean credit report and budget in hand, the next step is to visit your bank or financial institution. A loan officer will work with you to determine how much house you can afford. (It’s always best to go into a negotiating situation with a pre-approval amount in mind so you don’t overextend yourselves.) Remember, too, that a mortgage also comes with property taxes and homeowner’s insurance. Those expenses must be factored into the budget. Don’t be afraid to visit more than one financial institution as the pre-approval amount may differ.
Your second question is about private mortgage insurance, or PMI. This is insurance that covers the lender in the event you default on the loan. It is required if your down payment is less than 20 percent of the purchase price. If you can’t put your hands on that amount, you’ll have to pay for PMI.
Once you’ve been to the bank and are pre-approved for a loan, your next step is to engage a buyer’s agent. Sure, it’s fun spending every Sunday going to open houses, but real estate brokers do this all day. We can show you the best houses in your price range at your convenience. We are your eyes and ears in the community. When it’s time to select a buyer’s agent, we hope you’ll choose RiverCity Real Estate.
Explore our website (www.rivercityrealestate.info) for additional tips and tools for first-time home buyers. Good luck, Newbie!