Factors to consider when buying a home
The US real estate market saw increased home sales when the pandemic started as people took advantage of lower interest rates. But low inventory and rising home prices tempered this demand as home sales went down in the first part of 2021.
At this point, homebuyers are asking if it’s a good time to buy a house. They were unable to do so at the height of the homebuying spree when interest rates went down. Even as interest rates are still low, the higher home prices and low supply has made the real estate market a sellers’ market. Home sales have gone down compared to the time when the pandemic started.
With this, people who are still undecided on whether they should buy a house at this time can consider the following factors.
Stable income
The pandemic saw a lot of people losing their jobs. Even though the situation improved over a year after the pandemic started, it’s still possible for many businesses to close again with the emergence of new variants of the virus. With this, they should make sure they have a second source of income in case they lose their jobs again.
A stable income is necessary for a person to get a loan that he can use to pay for a home. Financial credit companies are more comfortable in lending money to people who can pay off the loan. So a potential homebuyer should ensure he has a stable source of income to benefit from a loan.
Good credit score
A low credit score means that a person is a risky borrower, which will increase the loan’s interest rate. It will also force the homebuyer to spend more on the down payment of the house. On the other hand, a high credit score gives people better loan payment terms, lower interest rates, and faster loan approval.
So, it’s important for anyone looking to buy a house on loan should take care of his credit score. Before buying a house or applying for a loan, homebuyers should check their credit report and see if they can buy the property they are eyeing.
The pandemic has exacerbated the situation as financial credit companies are keen on ensuring they get paid for the loans that they give. With many people losing their jobs, financial credit companies are checking the backgrounds of people looking to get a loan toavoid issues of nonpayment in the future.
Credit scores can also affect the average cost of homeowners’ insurance. And high insurance costs can affect the ability of the homeowner to pay off his location within the allotted period. Aside from credit score, insurance will also increase when the area has a high crime rate and low fire suppression rating. In this case, the homeowner may want to look for a different location to buy a house.
Suitable savings
Savings is another factor that potential homeowners should look into when they’re still planning to buy a house. Their savings should be suitable to cover the down payment and the closing costs of buying a house. They should remember that their credit score determines the amount they need to pay for the down payment. On the other hand, the closing costs are between two to five percent of the property’s total purchase price.
Financial credit companies prefer to provide loans to people with suitable savings to cover these initial expenses when buying a home. So, a person should save first before looking for any property they can buy. Aside from increasing their chances of getting a loan, it can also make the loan approval process faster.
Debt management
The way a person handles debt shows his capability of paying the monthly mortgage for the house. The debt-to-income ratio or DTI is based on the gross monthly income of the homebuyer. It is the percentage that the person uses to pay the monthly mortgage. A low DTI means the homebuyer can easily cover the monthly payments for the mortgage. But a high DTI means the person may have incurred a good amount of debt that most of his income goes to debt payments.
Financial credit companies normally provide loans to people with a low DTI ratio since they have a bigger chance of paying off the loan within the specified period. A good DTI should be below 43 percent of the income. But if the person has a DTI of 36 percent with around 28 percent going to mortgage payments, he will have a bigger chance of getting the loan.
Buying a house is a major life decision, so people should consider different factors before finalizing the purchase.
