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How Much Home Can I Afford?

HOW MUCH HOME CAN I AFFORD?

One of the first steps in your home search is to meet with a top notch lender, who you can trust to get the job done.  Not all lenders are the same.  Make sure you work with one that takes the time to review your documents and provide a "true" pre-approval letter.  A pre-approval letter from a lender, increases your leverage during a negotiation.  Paperwork that is often requested are: pay stubs, W-2s, Federal Tax returns, information about loans or other debt and bank statements of all accounts  Having a pre-approval attached to your offer shows the Seller that you are serious and qualified to buy.  Your loan officer will let you know how much home you can afford.

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WHAT IS THE TRUE COST OF OWNING A HOME?

Be sure to consider more than just the monthly mortgage payment.  Take into account:

  • Property Taxes​

  • Insurance

  • Homeowner's Association Fees

  • Maintenance / Repairs

  • Utilities

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WHAT IS MY CURRENT FINANCIAL SITUATION?

Most mortgage discussions start with a credit score. Any lender will want a complete picture of your finances; it will help them assess how likely you are to repay your loan. Several factors are used to calculate your score, including payment history, amounts owed, length of credit history and types of credit used.

 

A great place to start is by checking your credit report. You’re entitled to one free copy of your report every year from each of the major credit reporting agencies, Experian, Equifax and Transunion. Annualcreditreport.com is a good site to use to check all three and the only site authorized by the US Government. Credit scores are not free and if you’re going to spend the extra money, make sure you’re getting a score that lenders will use.

5 MOST COMMON TYPES OF MORTGAGES

PRIVATE MORTGAGE INSURANCE

If your down payment is less than 20%, lenders will require Private Mortgage Insurance (PMI). It protects lenders if a loan is not repaid and a house goes into foreclosure. The fees vary, depending on the size of the loan, but it can cost between .5% and 1% of the mortgage on a yearly basis.

If you do need PMI, pay attention to the payments that you make towards your principal. Lenders are not required to cancel PMI until a borrower has reached 22% equity in their home, but it‘s possible to call and have it cancelled at 20%. It is also possible to cancel PMI if the value of your home increases. That value is automatically added to your equity and may push you over the 20% requirement.

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