Preparing for Home Ownership
Buying a home is one of the biggest financial decisions that you will ever make and one of the most expensive purchases you will make in your life. At the outset, buying your first house in Connecticut may seem like a big hill to climb. Most everything in life is difficult the first time around, and we want you to see us as the guiding hand that will help you through the mortgage process.
You want to be sure that you’re getting a competitive rate, that you understand the fees you’ll be paying at closing, and all the other details that come with home ownership. There’s a lot to learn and get comfortable with, so let’s get started by reviewing the steps to homeownership:
In general the process for buying home is as follows:
- Get financially fit. Start saving and adhere to a financial budget to prepare for the additional expense of your mortgage payment, taxes and insurances. Review your credit history and pay all your bills on time. Ask yourself if you are ready for the responsibility of owning a home and realistically consider why you want a home. It takes a lot of time, energy and money, and you want to be sure you’re doing it for the right reasons, both personally and practically.
- Know your rights. There are many Connecticut state and federal laws to protect you as a homebuyer throughout the process, including predatory lending and discrimination protection. Do some research on your rights to full disclosure of fees, charges, terms of the loan and credit decisions. For more information visit HUD’s website at http://portal.hud.gov/hudportal/HUD
- Get pre-approved and house hunt with confidence. Knowing what you can afford before you start looking for a house in Connecticut ensures you don’t waste your time or set your heart on a house you won’t be able to purchase. Define the most important home features for you and begin shopping for your ideal Connecticut home. It helps to make a wish list of key requirements. By defining these requirements, you won’t waste time looking at houses that don’t meet your needs.
Once you are convinced that you want to buy a house in Connecticut, the next step is to determine how much you can afford. You can start by analyzing your current expenses. Expenses come in the form of “fixed” expenses and “discretionary” expenses. Fixed expenses are things like car payments, taxes, day care, where as discretionary expenses are those where you have flexibility in deciding how much, or little, to spend in these areas. Examples are clothing, entertainment, and travel. Forming a mock budget that takes into consideration your existing expenses, a mortgage payment, homeowners insurance, taxes, and property maintenance will give you an idea of what you can afford.
Generally, people in the mortgage industry say that you can afford a house that costs up to two and one half your annual gross salary. But that depends on how much debt you are carrying. Lenders look at your existing debt in determining how large a mortgage to grant you. Lenders are interested in your long-term debt, which is defined as any debt that will take more than ten months to pay off. If your monthly debt payments are excessive for your income level, this will limit the amount you can borrow. If you are carrying excessive debt, you may want to pay off some of it before preparing to buy a house.
Now is the time to organize all of the documents that you’ll need to fill out a mortgage application. Besides your basic personal contact information and social security number, you’ll also need the following:
- Employment history for the last 2 years – including title, contact info, years at job
- How are you paid – frequency of checks, hourly or salary, bonuses or commissions, W-2 or 1099, hours per work week
- Other income – child support, alimony, foster care, boarder income, military pay, car expenses, pension/retirement, disability/social security, unemployment/welfare, VA benefits
- Asset information – checking, savings, 401K accounts, mutual funds, money market funds, pending sale proceeds, trust fund accounts, gift money
- Debt information – child support, alimony, car loans, rent, student loans , credit cards