Are You Ready to Buy Your First Home?

The dream for most newly married couples is buying their own home. Home ownership brings pride of ownership, a place of your very own, and the freedom of being able to decorate and landscape as you please. If you feel you are ready to take this first vital step, then there are considerations that you must make to determine if you can financially afford the price of home ownership. Here, we will discuss these considerations.

The biggest hurdle for newly married couples is coming up with a down payment for a new home. Bankers expect at the very minimum 10% down on any home purchase. It is to your advantage to pay more than the minimum 10% to avoid having to pay private mortgage insurance(PMI). The cost of PMI will be added to your monthly mortgage payment. Private mortgage insurance protects the lending institution if foreclosure is eminent. Typically, the payment of PMI is done away with if you put down 20% or more.

The next consideration is closing costs. Closing costs are the fees you pay for services that must be performed to close your loan. They include such things as appraisals and inspections, banker fees for producing the loans, title searches, and other associated fees, such as taxes and escrow. The lending institutions must give you a fair estimate of closing costs. Called a Good Faith Estimate, it will be given to you upon requesting a loan for a home. This fee generally is around 6% of your initial loan.

The next big consideration for the prospective home buyer is the cost of running the home. Utilities, such as gas and electric, cable and telephone, trash service, and snow removal need to be looked at. Although many renters often have these items figured into their rent payments, you as a home owner will find it is now your responsibility. This expense can be a large part of the family budget. Overlooking this important detail is often the reason people go into foreclosure. Remember, these utilities are not a fixed rate, and can only go up over a period of time.

Experts agree that you should bank 5% of your income to manage any needed repairs on your home. Roofs can begin to leak, wind can damage siding, and you may become infested with mold due to pipe leakage. Fixing all these things is expensive, and not figuring this expense in is foolhardy for the first time borrower.

How is your credit report? Do you have a lot of credit card debt? The national average on the typical credit card is 13.8%, according to Bankrate.com. This is nearly double the amount of interest for the average home, which is now around 6.26% as of July 29, 2007. Credit card debt limits the amount you can borrow because lenders will not consider a loan if your debt load is more than 40% of your gross income. Such things as student loans, car loans, and insurance are considered. Many people make the mistake of attempting to save as much money as they possibly can for down payment. They will pay minimum payments on credit card bills, and try to amass as much money as possible. It is far better to pay off excessive credit card debt than attempt to save extra money for a down payment. Although you may have to make a smaller down payment on your new home, these bills will not get in the way when attempting to secure a loan.

Always figure how much you can afford. Remember that the cost of owning a home and paying property taxes and homeowner's insurance shouldn't exceed 28% of your gross income. Determine how much you can come up with for down payment, and then be sure to have enough left over to pay closing costs, running 3% to 5% of your total home value. Always be sure, too, of having some extra cash available for emergency repair when you move into your new home.

Fannie Mae has an "expanded approval" program that allows folks with blemished credit the opportunity to own their first home. Rates are competitive and sometime even 2 percentage points lower than the national average.

Even if you cannot qualify for a Fannie Mae loan, the Federal Housing Authority (FHA) offer government approved loans with even more lenient credit criteria.

The Department of Housing and Urban Development (HUD) helps states and communities yearly to provide people with low income the opportunity to raise money for a down payment. This program helps young buyers raise $3,000 to $5,000 for down payment. Although this loan is required to be paid back, it is often forgiven if a couple stays in the home for at least three years.

When ever you consider buying a home for the first time, be aware of all the things that should be considered before you attempt to buy. It will make the home buying process much easier for you.