Buying a home is among the most significant investments people make in a lifetime. But what if you’re not ready to be tied down to a 30-year mortgage? Or you don’t have the credit or employment history to qualify for a conventional loan? Some programs let you buy a home with little or nothing down. Fortunately, there are options for prospective buyers, even if they don’t make a lot of money.
Right to buy
If you’re a council tenant, you might be eligible under the right to buy legislation to purchase your home at a discount. You can consult professional but affordable home builders in Charlotte NC and they will provide you with information and your building needs.
Make sure your credit score is high.
Your credit score is one of the most important factors lenders consider when determining whether you qualify for a loan and what interest rate you’ll pay. It’s all about risk: If you’re deemed likely to default on your loan, you’ll pay more; you’ll pay less if you’re seen as a low-risk borrower.
Shared ownership allows you to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. You can buy bigger shares and sometimes eventually even own the property outright.
Tips on getting an affordable home
Do your research
Researching what you can and can’t afford will help you narrow down your choices when buying your first home and avoid potential disappointment.
Clear your credit profile
One of the most important things you can do when buying a house is to get your credit in order. The higher your credit score, the lower your interest rate will be, and that can save you thousands of dollars over the life of your mortgage loan. You should also check reports from all three major credit bureaus (Equifax, Experian, and TransUnion) for any inaccuracies or errors that might negatively affect your score. In addition to fixing any errors, consider paying off as much debt as possible (without sacrificing emergency funds) and paying all bills on time every month.
Get pre-approved for a mortgage.
Before you start house hunting, get pre-approved for a mortgage so you have an idea of what price range you can afford — and potential sellers will take you seriously when making an offer.
Take a loan you can well afford
It’s tempting to take out a mortgage for the maximum amount you can borrow. After all, who doesn’t want the biggest, most beautiful house possible? But doing this increases your monthly payments and makes it harder for you to save money for retirement and other goals. To figure out what you can afford, write down your income and expenses, including the mortgage payment. If there’s no room for savings, look for a less expensive home.
Leave room for an emergency fund.
No one likes thinking about disasters, but they do happen — a job loss, medical crisis, or car repair can quickly wipe out your savings if you don’t have an emergency fund. Ideally, you should have enough to cover at least three months of expenses in cash or cash equivalents (like a high-yield savings account). You may need more if you’re self-employed or work in an industry with an unstable income.
Do not use more than 25% of your income on lodging.
Whether you’re renting or buying, this is a good rule to follow. Even if your overall debt is low or you’re sitting on a pile of cash reserves, if housing payments consume most of your income, they could still sink your finances quickly if something happens like an unplanned job loss or an unexpected bill.
Understand the importance of the debt-to-income ratio
Taking out a mortgage means you will be paying it off for years, perhaps decades. That’s why it’s important to look at the monthly cost of homeownership and your yearly one. When determining whether you can afford a home, lenders use the debt-to-income ratio (DTI), which compares your gross income with your total outstanding debts. Generally speaking, lenders like your DTI ratio to be 43% or less.
By now, you’ve probably discovered that buying a home is not just about finding your dream house. There are many other factors to consider. When you’re ready to buy a house, it’s smart to get your finances in order before you start the process. And while everyone knows they need to budget for the down payment and monthly mortgage payments, other costs can add up quickly that aren’t as obvious.