The minimum down payment on a house may be as low as 3.5 percent, which is just $8,750 on a $250,000 home. But you'll also need to pay for closing costs, legal fees and insurance, which can add thousands to your initial investment.
Mortgage payments are just one of the expenses homeowners pay each month. You will also have to pay for property taxes, insurance, water, sewage and other utilities. If you are buying a condo, you'll also have condo fees or homeowner’s association fees. In some cases, these extra costs can be more than your mortgage payment.
It's important that your income brings in enough to cover the costs of home ownership and life's other financial responsibilities. A good rule of thumb is that your mortgage payments shouldn't exceed 28 percent of your gross income.
Lenders like to know that you will be able to make your mortgage payments every month. Having stable employment, and therefore a steady paycheck, may determine whether or not you get a mortgage. If you work freelance or change jobs frequently, it may be more difficult to get a loan approved.
Having a good credit history is vital before applying for a mortgage. Having no credit history may be almost as bad as having poor credit. Showing that you can handle debts like a credit card, a car loan or a student loan shows mortgage lenders that you are financially responsible.
Having a lot of credit card or other high-interest debt can affect your credit rating, which means you could pay higher interest rates when you get a mortgage. Just as important, being unable to pay off your credit cards may mean your finances aren't healthy enough yet to commit to a mortgage.
Buying a home may not be a good idea if you can't commit to staying there for at least three years. Selling your house a couple of years after buying it could cost you a lot of money since the home's value may not have increased enough to cover the costs of purchasing it.
As a homeowner, there’s no landlord to call, so it's your responsibility to keep your home in good repair. If you're not prepared to tackle even minor repairs like a dripping faucet or a dead fuse, you should add a few hundred dollars each year to your budget projections before buying a house.
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