This month's blog is dedicated to homeownership.
Primary Question: Can I afford to buy a home? Let’s find out!
Step One: Budget. Analyze your current expenses by keeping a record of your daily expenses for at least one to two months to get a realistic picture of the cost of your current lifestyle and consider what you are willing to “give up” temporarily to financially prepare for home ownership.
Step Two: What kind of property do you want? There are several options: Co-Op, Condo, Single Family home, Multi Family (rental income potential).
Step Three: What are the costs associated with purchasing a home? Think about the Down Payment, Closing Costs, Moving-in Costs, On-going Costs (i.e., utilities, maintenance fees/carrying charges, etc.)
Step Four: Affordability/ how much can you borrow? Take into account your current income, your monthly consumer debt payments; for example: car loans, student loans, personal loans, credit card payments, court-mandated child support, alimony etc.
Step Five: Where do you want to buy? Location, location, location should always go with affordability, affordability, affordability. Will it be in Brooklyn or in Garden City? The location will determine the purchase price.
Step Six: How’s your credit, FICO score? Do you have to establish credit, repair credit, reduce credit utilization? What’s non-traditional credit? Your credit score (FICO) determines your financing (interest rates) options. This is very important!
Step Seven: To increase your borrowing power, consider additional income, like working over time, getting a second job, a co-borrower, rental income if purchasing a multi - family home, or ultimately a better paying job. Reduce or eliminate some consumer debts or consider a mortgage product that will result in lower monthly payments and NO PMI (Private Mortgage Insurance).
Step Eight: Which Mortgage product is best for you? There are several options, like a Conventional mortgage, FHA, VA, or a SONYMA (State of New York Mortgage Agency).
Step Nine: Do you want to avoid paying Private Mortgage Insurance (PMI)? Make a 20% down payment or more and you’ll have the benefits of NO PMI, a smaller mortgage and the possibility of a more attractive interest rate.
Step Ten: The Pre-qualification/Pre-approval process will tell you how much you can borrow based on your income, current debts. The quality of your credit is also considered. Keep in mind, just because you get pre-approved for a million dollars doesn't mean you have to borrow a million dollars.
Step Eleven: Do I need Homeownership Education/Counseling? The quickest answer is YES. This will cover the mortgage application process, budgeting, shopping for the home, Home inspection, role of Real Estate Agent, Real Estate Attorney Appraisal, possibly Landlord counseling and Foreclosure prevention.
Denise Garrett is a financial counselor at the LDCENY and has more than 25 years experience in financial counseling and retail banking.