If you’re thinking about buying a home for sale in Redding, CA – what’s stopping you? For most first-time buyers, it comes down to one thing. Affordability.
It’s common that people wish to be homebuyers, but they assume their financial situation is keeping the dream out of reach. Here’s the straight answer on what you need to buy a home, what you actually don’t need to buy a home, and the information you wish someone would have told you.
Must Haves for Buying a Home
If you’ve never sat down and talked to a mortgage professional, you probably have a handful of assumptions of what you need to buy a home for sale in Redding. You may be under the impression that you need a perfect credit score, a thick wallet for a down payment, and a sufficient income for qualifying. But in reality, these things aren’t necessarily required.
Here’s a tip… lenders aren’t adamant about a perfect credit score or a plentiful savings account.
What a lender is actually looking for is to see if you qualify is your ability to repay your mortgage, while minimizing the risk of defaulting on the loan. This can happen in a number of ways, so if you can prove that you have what it takes, buying a home for sale in Redding may be closer than you think.
Affordability Factor: Debt-to-Income Ratio
In addition to income or assets, the next affordability factor is your debt-to-income ratio. In other words, this means the amount of money you bring in each month compared to the money you spend on your total housing costs and living expenses.
To calculate your DTI, you will take your total housing costs – which includes your mortgage payments, interest, taxes, and insurance, and add it to your existing monthly obligations (such as loans, credit payments, and living expenses). This number is then divided by your gross monthly income to determine your DTI ratio.
The sweet spot lenders are looking for typically falls in the 30-43% range. Different home loan programs have different qualifications when it comes to DTI ratios, but if you’re in the acceptable range there’s a good chance you can afford a home for sale in Redding, CA.
Affordability Factor: Your Credit
Yes, your credit can play a large role in your ability to obtain a home loan, but that doesn’t mean you have to have a perfect credit score if you want to buy a house.
There’s specific home loan programs available for those whose credit score isn’t a home-run. But of course, having a solid credit score gives you favor when it comes to interest rates and more options.
Things You Don’t Need
One of the biggest hurdles homebuyers often face is the seemingly insurmountable task of a 20% down payment. This is a myth that needs to be busted. Trying to save an amount of this size can be unrealistic for most people.
While there are benefits to being able to make a down payment of 20%, such as avoiding private mortgage insurance (PMI) payments, you may be able to buy a home with as little as 3% down, or less. There are many loan programs, first time buyers programs, and other options available to specifically help home buyers in this situation. Ask your mortgage loan advisor if one of these options will work for you.
Can You Afford to NOT Buy a Home?
Homeownership may provide some pretty serious financial benefits for the average buyer. There’s no doubt that it’s one of the most common ways for building wealth in America.
First, homeowners that have a mortgage are building equity every month. Home equity is the value of your home, minus what you owe. Equity grows as you may your mortgage payments and pay down your principal balance each month. Your equity can also grow over time if the market value of your home increases. Every homeowner is an investor.
Secondly, if you own a home you may be able to deduct your mortgage interest from your tax obligations. This often translates into a significant amount in the early years of homeownership when interest is high. Property taxes are something that you can certainly take advantage of.
Lastly, you should do whatever it takes to break the cycle of renting. Renters are often left paying over half of their gross income on their rent, leaving very little left over for savings, investments, or their financial future. Which means most of their money is being spent without sent any return.
The best way to see if you truly can afford a home is to sit down with an experienced mortgage loan advisor. Together, you can determine the likelihood of buying a home for sale in Redding, CA.
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