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How to know if you can afford to buy a home in this crazy real estate market

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Estimated read time: 5-6 minutes

Will you keep paying the rent or will you buy it? It’s an old question that future homeowners will tackle as they monitor the real estate market.in the meantime Realtor.com Utah home prices are expected to rise 8.5% in 2022, and interest rates are rising. In other words, waiting for a purchase can lead to higher prices.

If you feel the urge to buy a home early rather than later, you will wonder if buying a home is feasible even in the current market. Perhaps a better question is how much home you can buy. A $ 1 million home may be out of reach, but a $ 450,000 home may be perfectly reasonable.

However, there are other factors to consider before making the biggest purchase in your life.Here’s how to determine if it’s a good time for you Buy a house..

You have a stable source of income

In general, it is advisable to avoid making several major decisions in life at the same time. So if you’re currently considering jumping from one carrier to another, it may not be the best time to buy a home. Also, if you barely start a new job, it can be a difficult time to qualify for a loan as well. It’s not a strict rule, but lenders usually need two years of employment to qualify for a mortgage. Mortgage Report There are ways to avoid this, but it is absolutely desirable to have a stable source of income.

Low debt-to-income (DTI) ratio

Your income indicates that you have the money to repay the loan, but your debt-to-income (DTI) ratio reflects your chances of actually doing it. The DTI ratio measures the amount of total monthly income used for monthly debt repayment. (These debts include mortgage payments, rent, credit cards, student loans, car loans, child-rearing, or other types of debt.)

according to Investopedia, Most lenders usually do not work with DTI ratios above 43%, but this can fluctuate. Here’s how to calculate the DTI ratio: Sum all your debts and divide by your total monthly income. (For example, if your monthly debt is $ 2,000 and your total monthly income is $ 6,000, your DTI ratio will be about 33%.)

How to know if you can afford a home in this crazy real estate market
Photo: WAYHOMEstudio / Shutterstock.com

Your credit score is good

The good news is that you don’t have to be completely debt-free to buy a home — but you need to have decent credit. After all, you owe a lot of money from your lenders, so they need good reason to believe you will pay them back! The numbers may vary slightly, Nerd Wallet Report A fair credit score is between 630 and 689, a good score is between 690 and 719, and anything above that is excellent.

If your credit score is not in the “good” range, there are things you can do to increase the number. Investopedia recommends that you get into the habit of paying your minimum balance and paying your balance on time so that you can keep your overall credit usage low. (In other words, don’t run out of your credit card if you can help it.)

Also, avoid applying for multiple new cards at once. Depending on your financial situation, your score can improve in just one month.

I considered more than the purchase price

Don’t maximize your budget by just that number, as your mortgage payments will only be part of what you rent to your home each month. You will also need to pay for utilities, homeowners insurance, and homeowners association fees (if applicable). These costs can easily cost hundreds of dollars more from your pocket each month.

Also note that if your mortgage repayment is less than 20%, you will be required to pay Private Mortgage Insurance (PMI). This protects the lender if the loan cannot be repaid. The Urban Institute Note That PMI can range from 0.58% to 1.86% of the loan amount, so this number can definitely be summed up.

You will not liquidate all of your savings for a down payment

A 20% down payment for your home is ideal, but you need to know that it is not mandatory. Most first-time homebuyers don’t have 20% of the purchase price on hand. (( National Real Estate Agents Association 69% of first-time buyers reported dropping less than 20% in March 2022. )

The government offers a program for first-time buyers to buy a home with a 0% down payment, but the minimum down payment depends on what type of loan you have.according to Bank rateTraditional loans may require only 3% down, but this depends on the lender.

It is also important to understand that buying a home usually requires other costs such as purchasing furniture, adding landscaping, and remodeling. If making that minimal down payment runs out of all your savings, it’s probably a good idea to wait before buying a home.

Your monthly payments will be manageable

If you plan to buy a $ 450,000 home and your household income is $ 70,000, your monthly payments could be as much as $ 2,200. It may be higher than your rent, but they must be manageable as long as you keep paying your debt for about 30% of your income.

Consider that rents are also rising in the real estate market. When you buy a fixed rate home, you have a fixed monthly payment. You don’t have to worry about paying more like a lessor. If your interest rate is higher than you want, you can refinance your loan whenever the interest rate drops again.

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If you’ve checked all the above checkboxes and aren’t sure you can still find a home in today’s market, check out Homie Cash.. Many buyers are involved in bidding wars in this market and Homie’s cash is useful. With Homie Cash, you can create competitive offers at your favorite home and close them in just 21 days. For more information, please visit: homie.com/cash..

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