Tips from Silverton Mortgage Specialists’ Susan Pryor on every couple’s most important purchase.
It’s the ultimate dream: a home of one’s own. But where to start? Here, some basics for you and your partner to keep in mind.
Photo Credit: Sinclair and Moore
Are you ready?
Buying a home can make sense if you plan to stay in the same geographic area for a minimum of three to five years. Interest rates are still at record lows and prices remain reasonable in most markets. Owning a home allows you to put down roots in your community, to feel more grounded and connected with your surroundings — and to build your net worth. But be aware of the never-ending expenses associated with owning a home, such as property upkeep and repairs when necessary (plumber, electrician, etc.).
What are the first steps?
Before you begin to look at homes, determine what you’ll be able to afford. A general rule of thumb is to ensure that your mortgage payment will be less than one-third of your gross monthly income. For example, if your combined annual salary is $60,000, you would want your total monthly payment (not just principal and interest but also insurance and real-estate taxes) to be less than $1,600. A strong credit score is also essential. Beyond this formula, a loan officer can help walk you through the process, informing you of any additional costs and fees (such as attorney and appraisal fees). As well, she can tell you if you’re eligible for various grants and programs such as VA loans for military personnel.
Pre-qualification vs. Pre-approval.
With pre-qualification, the lender will verbally ask for information on your income, assets, debts, and how much you plan to spend on your down payment. From that information, they will derive an estimate of what you might be able to afford. There is typically no cost involved with a pre-qualification, and neither you nor the lender enters into any sort of commitment. Pre-approvals are a bit more calculated and accurate, but will cost some money for the additional work and applications required. Rather than accepting your word as the final source on your financial background, the lender will use documentation of your income, assets and debts, along with running a credit check. After verification of all of this information, the lender will give you a tentative commitment to lend up to a certain amount, based on the financial information acquired.
What are some key benefits?
Home ownership builds wealth over the long term, and as such can be a powerful financial tool. Over time, you can expect your home’s value to appreciate, or increase, around three percent annually. Let’s say you put 10 percent down on a $200,000 home ($20,000). After one year, a three-percent increase would yield a $6,000 gain, growing your initial investment of $20,000 to $26,000. If you sell the home after a few years, that investment may have grown even more. However, recent years have taught us that even real estate is not guaranteed to increase every year, though financial experts generally agree that real estate is a great investment right now. As well, the interest and taxes you pay on your home are deductible if you file an itemized tax return which is always a good thing!
What other issues should we consider?
It is essential to know whether you can handle the responsibilities of home ownership as you begin your lives together. Some newlyweds have only lived in their parents’ homes or leased properties, such as apartments or rented homes. In those settings, the responsibilities of maintenance often belong to someone else, perhaps Dad or your property manager. Discuss with your partner whether you would enjoy having a home that you can decorate and make your own, or if tasks like fixing those leaky gutters or handling the cost of, say, a new water heater are more daunting than home ownership is worth for you at this point in your lives. If the latter is the case, it’s best to keep renting until you’re able to save more and are comfortable with all the responsibilities and expenses that home ownership entails.
As you embark on your new married life together, you will want to consider the benefits of home ownership as a solid long-term investment. Consult with a professional to know your best financial options and make sure you’re prepared for the myriad responsibilities — and joys of a home of your own.
Susan Pryor is a branch manager at Silverton Mortgage Specialists in Atlanta and host of Real Estate Radio Atlanta 106.7 FM.
