Ridgefield's Talk of Our Town

Are You Ready to Own or Move Up? What to Know Before You Go ‘Home’ Shopping

With the expanded Home Buyer Tax Credit still in place, and home prices and mortgage rates still at attractive lows, more renters are grappling with the question, “Do I buy now, or should I keep on renting?” and more homeowners are wondering, “Is now a good time to move up?”

The answer, say money experts, depends on the overall health of your finances, because you need to not only amass a pile of cash for the deposit and closing costs, but convince a lender to lend you 80% or more of the purchase price in the form of a long-term mortgage. Here are four elements to consider:

Having good credit is important, so they suggest going to Fair Isaacs’ myFICO.com and purchasing your current scores ($15.95 each for reports from Equifax and TransUnion, another $15 at Experian.com). Don’t be surprised if the scores differ somewhat, and check them carefully for errors. Remember that errors must be reported to and corrected by the agencies themselves, which could take weeks or months.

Know what you can afford. Aim for a home that costs about two-and-a-half times your gross income–less if you have significant financial debt. In all, your monthly home payments should not exceed 36% of your gross monthly income. Getting pre-approved by a lender should be your signal to start home shopping.

Check your cash situation. Whether you are aiming to amass 20% of the home’s price for a conventional loan, or 3% or more for a loan from Fannie Mae, Freddie Mac, FHA or the Department of Veteran’s Affairs, you will also need to cover fees and closing costs, which can run up to 5% of the mortgage amount.

First-time buyers may augment their cash by borrowing from an IRA or getting a cash gift from parents, but check with a financial advisor for amounts and tax consequences. Current homeowners may be able to use proceeds from the sale of their current home.

And speaking of tax consequences, remember that homeowners, unlike renters, must pay property taxes each year–and pay for any needed repairs or upgrades. Be sure to leave yourself a little financial wiggle room in order to meet these expected–and sometimes unexpected–expenses.

As a Member of the Top 5 in Real Estate Network®, and an experienced real estate professional, I can help you with these important real estate matters. Please e-mail me for more information.

Karla Murtaugh
Neumann Real Estate
Cell: 203.856.5534
karla@neumannrealestate.com