|Are you ready to
be a homeowner?
If you're thinking about buying a home, you probably have a mental
list of the benefits owning a home would bring to your life. You
imagine waking up and falling asleep in your own home, decorating as
you please, or maybe even getting away from the loud neighbor you hear
every evening through the paper thin walls of your apartment complex.
You are ready to invest your monthly housing expense, instead of
giving it all to your landlord every month.
The desire to own a home has been felt by nearly all Americans.
Owning a home is the American dream. So what's stopping you? That's a
good question, one that should be carefully answered. It's important
that before you buy a home, you understand the potential impact it
will have on your finances and lifestyle.
Listed below are some of the new responsibilities and added
benefits of owning your own home.
Maintenance - If you've never owned a home before, you are
probably used to calling your landlord when an appliance breaks down,
or something else goes wrong. When you own your home, you become the
landlord. When the dishwasher stops working, you get to call the
repairman and pay for the repairs. Be prepared to spend more time and
money on emergency and planned repairs on your home.
Disposable Income - When you buy a home, you can either pay
cash or get a mortgage. Most people have some kind of mortgage on the
home they own. To get a mortgage, you will need a down payment. Saving
for a down payment will take discipline on your part, and possibly
some time. And this is required before you even move into the home!
Once you move in, you will need to continue setting aside money for
repairs, improvements, new appliances, etc.
Monthly Cost - In some cases, your mortgage payment will be
more than your current rental payment. This is especially true if
interest rates happen to be high when you purchase your home, or if
you buy a proportionately larger home than you are renting. Mortgage
payments are typically higher than rent because besides paying the
principal and interest on your mortgage, you must pay for hazard
insurance, property taxes, and any mortgage insurance that might be
Risk - Any investment you make has some element of risk.
Luckily, purchasing a home is on the low end of the risk spectrum.
Since no investment is totally safe, you will want to do sufficient
research before you buy the home, and continue staying atop of current
trends in your city and neighborhood to verify your investment is
doing well. Insurance and proper maintenance are other ways to protect
Liquidity - Buying a home should be considered a long-term
investment. If you plan on moving frequently, you might not recoup
closing costs and fees paid when you get a mortgage, or the fees paid
to a Realtor when you sell the home. And unlike a mutual fund or
stock, you must sell your home to turn your equity into cash. Selling
your home might take months and relocating to a new residence takes
energy. These are hindrances to accessing the money you invested and
why equity in a home is considered a non-liquid asset.
Pride of Ownership - It is a great feeling to own your own
home. This benefit may be enough to outweigh any disadvantage
previously listed. With your own home, you feel a sense of stability
and community that you probably didn't feel when you rented. This
comes from the fact that you own a piece of property in a neighborhood
along with others enjoying the same benefits as you.
Investment - Since you are going to have a housing expense
for most of your life, it is definitely worthwhile to consider
investing some of that expense in a home of your own. For those people
who plan on staying in a home long enough to pay off their mortgage,
owning a home is a forced savings plan.
Appreciation - If your house increases in value (becomes
worth more than you paid for it) you will benefit from this
appreciation. As you continue to pay your mortgage, and your home
appreciates, your equity grows. When you sell your home, this equity
will become dollars in your bank account. It is important to carefully
choose your home so that over time you will benefit from appreciation,
because it is not necessarily guaranteed.
Tax Savings - Consult your tax advisor for the specifics of
any tax savings you might benefit from with owning you own home.
Usually, some expenses may be tax deductible such as mortgage interest
and property taxes.
If you are ready to take advantage of the benefits of owning a home
and feel you can handle the new responsibilities it will bring, you
will want to take the next step and determine if you are prepared to
qualify for a mortgage.
Are you qualified to buy a home?
To qualify for a mortgage, you will need to prove that
you have sufficient income, credit, and down payment for the home you
are trying to buy. In general terms, you can expect the following
One aspect of qualifying for a mortgage is often referred to as
your "ability to repay." This means that you can provide evidence that
you receive a certain amount of income sufficient to pay your current
liabilities along with the new mortgage payment. Two qualifying ratios
based on your gross monthly income (income before taxes or deductions)
determine the loan amount for which you qualify. These ratios vary
depending on the mortgage program you apply for and on each individual's situation, but there
are some "basic" qualifying ratios that you can use to determine if you
qualify for a certain loan amount.
Generally, for a conventional mortgage, your housing expense, which
includes your principal, interest, taxes, and insurance, should not
exceed 28% of your gross monthly income. Your total monthly expenses,
which include your housing expense and any long-term debt, like car
payments, should not exceed 36% of your gross monthly income. FHA and
VA mortgages have different qualifying ratios. See chart below.
For example, if your gross annual income is $50,000, or $4167 per
month, your monthly mortgage payment should not exceed 28% of that
number, or $1167. In other words, you would qualify for a conventional
mortgage that requires monthly payments of $1167. But you have to
qualify with all monthly long-term debt also. If your gross monthly
income is $4167, 36% of that number is $1500. So your total long-term
debt along with your mortgage payment cannot exceed $1500 per month.
|Type of Mortgage:
||Housing Expense Ratio:
||Total Monthly Expense Ratio:
** Depending upon credit scores -
the above numbers are flexible.
You can call Florida Mortgage Corporation and speak to one of our
consultants who can calculate these ratios for you and provide a
loan amount for which you qualify. We will require documentation of
the monthly income you receive. If you are a regular employee, 30 days
of paystubs and W2s will be required. If you are self-employed, two
years' most recent tax returns along with a profit and loss statement
will be needed.
Another aspect used to determine if you qualify for a mortgage is
referred to as your "willingness to repay." This takes into
consideration your past and present credit history. Your credit
history will demonstrate if you are willing to
pay your debts in a satisfactory manner.
Your credit history includes items that may or may not appear on
your credit report. Liabilities like car loans, credit card debts, and
any personal loans will most likely appear on your credit report. If
any of your liabilities at the time of applying
do not show up on your credit report, you will be required to provide
evidence of your repayment history with those accounts. An item that
most likely will not appear on your credit report is your rental
history. This will have to be verified independently either through a
letter from your landlord or copies of your rent checks that have
cleared your bank account.
If you feel like you pay all of your creditors as agreed, you
probably have excellent credit. If your credit report confirms that
you do pay on time and in full, you should have no difficulty in
obtaining a mortgage. Do keep in mind that you never want to have too
much outstanding debt so that you qualify from an income position.
If you do not have much of a credit history, for whatever reason,
you can still obtain a mortgage loan. For instance, when you pay your
monthly phone or public service bill(s), these companies do not report
your payments to a credit reporting agency. However, these are sources
of credit you may have obtained. We will need
verification of payments to these non-traditional credit references.
expert loan consultant for details regarding these types of credit
Some potential homebuyers might have less than perfect credit
histories. If you feel like you fall into this category, discuss your
particular situation with us. Many programs exist for
different types of borrowers. Your dream of homeownership might still
be within reach.
In the past, if you did not have at least 20% of a home's purchase
price as a down payment, you could not qualify for a mortgage.
Unfortunately, that kept many people from buying a home. That is not
the case today. As a result of government programs, private lenders,
and mortgage insurance, etc you can buy a home with no down
financing - including closing costs at Florida Mortgage
Mortgage insurance companies play a major role in helping a
homeowner with less than 20% down obtain a mortgage and purchase a
home. Basically, a mortgage insurance company insures the lender for
the difference between what a borrower puts down (as little as 3%) and
the 20% down the lender would normally require as down payment. Any
mortgage amount you borrow that is more than 80% of the home's
purchase price will require mortgage insurance. With conventional
financing, you will pay the mortgage insurance with your monthly
mortgage payment. FHA requires a monthly mortgage insurance payment
along with an up front insurance premium that is financed in your loan
amount. VA requires an up front premium that can be financed into your
Regarding your actual down payment, however much it is, you will have a few requirements. The most common
requirement is that the money you set aside for your down payment can
be verified as yours. Some mortgage programs may allow for your down
payment to come from other sources, however, it is more likely you
will have to prove that your funds for your down payment are your own.
Another requirement concerns the liquidity of your funds. A cash
balance in your local bank account is considered to be the most
liquid. Stocks, bonds, or any other assets (including property) are
not considered liquid, but if sold and documented to have been your
own, are perfectly acceptable.
Homeownership is at an all time high because of low down payment
or zero down options. With a
low down payment,
zero down payment, many first-time homebuyers are now
able to experience the benefits of homeownership sooner than ever
Remember that the guidelines outlined above are general in nature
and Florida Mortgage Corporation can provide any specific requirements for your
You've weighed the benefits versus the new responsibilities of
owning your own home, and you think you qualify for a mortgage. So
what's next? Submit a completed
application to Florida Mortgage Corporation.
Find a Realtor
You should do is find a qualified Realtor. Although you may think
you can find a home by yourself, by looking in the paper or driving
through neighborhoods, a Realtor is an invaluable assistant. Not only
will he or she be able to direct you to your dream home, a Realtor
assists with the negotiating and entire home buying process. As a
buyer, a Realtor will provide most of these services to you free of
charge. Be sure to find out if the Realtor you choose will be working
for you as a buyer's agent, or for the seller as a seller's agent. It
is usually desirable to find a Realtor that will be your agent so that
you will be satisfactorily represented throughout the process.
Don't make any major changes
Do not make any major financial changes in the weeks or months
leading up to buying your home. Any new debt could change the loan
amount of the mortgage for which you qualify. A change in jobs,
especially from regular employee to self-employed, could change the
type of loan for which you qualify. Discuss any changes you must make
with us first. Florida Mortgage Corporation will be able to advise you on
the proper steps to take so that you can still become a homeowner.
Finding a home should not be taken lightly. You will want to take
your time and research the home you finally purchase. If you are
living in a tight home market, where there are more buyers than
sellers, you may need to make your offer on a particular home quickly,
but that does not negate the fact that you should do your research.
Plan on treating your home search as a part-time job. In the end, you
will find that all of your hard work resulted in the benefits of