Spring is here, and so is the home buying and selling season. Are you ready to jump into homeownership? Is 2022 the year you finally own your own home? Eagle Inspections in Philadelphia is proud to be part of hundreds of home purchases every year. We provide full-service home inspections to buyers in Philadelphia, Bucks County, Montgomery County, and Delaware County.
We’ve learned a few things about home buying along the way. If you’re considering purchasing a home, we suggest the following:
You have certainly thought about money when thinking about a house, but chances are your thoughts have been limited to these four questions:
These are good and valid questions. At the same time, it’s important to dig a bit deeper and think about your money the way a mortgage broker will. That means considering the following:
This calculation is how lenders determine if you can afford the monthly mortgage payment. They’re typically looking for a debt-to-income (DTI) ratio of 43% or less, depending on the lender and the type of loan. If your DTI is 43%, that means that the total of all your monthly debt payments (credit cards, car loans, etc.) plus the home loan and all other related expenses equals 43% of your income. Let’s put some numbers in to make this real:
If your annual salary is $120,000, that means your monthly salary is $10,000. At this income level, a DTI of 43% means that monthly debt and housing payments cannot exceed $4300. The lower your DTI, the better and the more likely you are to qualify for a loan.
Lenders don’t like living on the edge, and they want to make certain, as best they can, that they’ll get their money back. If you’re concerned about qualifying or your DTI is hovering around the 43% mark, it’s probably wise to pay down some debts and do what you can to increase your income before buying a home.
Why is a down payment necessary? Why can’t you just borrow the full value of the home? Again, the answer is about risk, a thing lenders don’t like.
A down payment of 20% is best. Lenders require buyers to put down less to pay monthly for private mortgage insurance (PMI). PMI protects lenders from risk, a cost they pass to the buyer. PMI can cost an average of $50/month for every $100,000 borrowed. It’s a sunk cost – it does nothing to your principal or interest; it’s simply the cost of buying a home with a small down payment. And a lower down payment will decrease your loan amount and often increase your interest rate, so you get hit three times.
Financially, it’s far wiser to put 20% down, avoid PMI, have a lower mortgage payment because your loan is smaller, and qualify for a lower rate. You’ll save a ton of money.
Money isn’t the only consideration; other factors also determine if now is a good time to buy.
Is it a buyer’s or seller’s market? If the supply of houses is high, you’ll be able to make a better deal. In a seller’s market, home prices are inflated, making it difficult to find a home at a reasonable price and increasing the risk that the home will decline in value over time. Be very wary of buying a home in a seller’s market; opt to wait until demand and supply stabilize.
Spring is a popular time to buy and sell, but it might be wise to consider shopping for a home off-season. Sellers who need to move their homes in the fall or early winter are often desperate for buyers, and you can get a good price. You won’t have as many homes to choose from, but you can often find a very good deal.
Is now a good time? Is your job stable? Do you have a need for extra space? Do you want your kids to change schools? Can you live your current life and pay for a new home? Do you have the time to care for a home on your own? These and other questions all need to be part of your decision.
Another important question is, how long do you anticipate owning the home? Buying a home is expensive, not just because of the monthly mortgage payments. Several one-time fees are part of the purchase process. If you think that you might need to move on within five years, purchasing a home might not be the best financial decision. If you’re determined to buy anyway, purchase a much less expensive home than the upper limit of your budget, so you don’t risk taking a devastating hit when it’s time to sell.
The last piece of advice from Eagle Inspections is this: always schedule an inspection. During an inspection, professional home inspectors visit the home and take a detailed, comprehensive look at the condition and safety of the home from the roof to the foundation and everything in between. The skilled home inspectors at Eagle Inspections will look carefully at your dream home and let you know if there are any red flags that need to be addressed before you sign on the dotted line.
Buying a home is a big decision. We’re excited that you’re ready to venture into owning a home. When you’ve found the house you want, call Eagle Inspections to check it out for you. We help our customers buy with confidence. Call today.