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Thinking About Buying Your First Home?
Part 2: Your financial health - your credit and home affordability.
Is now the right time financially for you to buy a home? Would
you rate your financial picture as healthy? Is your credit good?
While you can always find a lender to lend you money, solid lenders
are more skeptical if your credit history is not good. Generally,
a couple of blemishes on a credit report will make you a good
credit risk and could qualify you for the lowest interest rates.
If you have more than a couple of blemishes on your report, lenders
like Quicken Loans may still provide you with a loan, but you
may just have to pay a higher interest rate and fees.
Some say that you should refrain from borrowing as much as you
qualify for because it is wiser not to stretch your financial
boundaries. The other school of thought says you should stretch
to buy as much home as you can afford, because with regular pay
raises and increased earning potential, the big payment today
will seem like less of a payment tomorrow. This is a decision
only you can make. Are you in a position where you expect to make
more money soon? Would you rather be conservative and fairly certain
that you can make your payment without stretching financially?
Make sure that whatever you do, it's within your comfort zone.
To determine how much home you can afford, talk to a lender or
go online and use a "home
affordability" calculator. Good calculators will
give you a range of what you may qualify for. Then call a lender.
While some may say that the "28/36" rule applies, in
today's home mortgage market, lenders are making loans customized
to a particular person's situation. The "28/36" rule
means that your monthly housing costs can't exceed 28 percent
of your income and your total debt load can't exceed 36 percent
of your total monthly income. Depending on your assets, credit
history, job potential and other factors, lenders can push the
ratios up to 40-60% or higher. While we're not advocating you
purchase a home utilizing the higher ratios, its important for
you to know your options.
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