Realize Your New Year’s Resolution of Homeownership in 2023
Can you believe it? 2023 is right around the corner. Now’s the time everyone wants that fresh start. We all do this by writing down our New Year’s resolutions.
Buying a new home tops many lists for sure.
Hey, if you’re going to dream. Dream big!
You’ve Put It Out In The Universe – Now It’s Time to Act Like A Homeowner
Once you’ve decided on your dream of homeownership for 2023. You’ll want to pave the way to achieve your resolution. Let’s start by building a solid foundation.
Start by Getting Any Existing Debt Under Control
Before beginning your journey towards a big purchase like a house, it’s wise to know your other outstanding expenses and debt. The important thing is to get your debt-to-income ratio (DTI) just right.
Most conventional loans allow for a DTI of no more than 45%, but some lenders will accept ratios as high as 50% if the borrower has compensating factors, such as a savings account with a balance equal to six months’ worth of housing expenses.
Create a Budget If You’re Not Already Doing So
The formula is simple. Add your monthly debt payments and divide that by your pre-tax monthly income. For example, if your monthly expenses add up to $3,500 and you have a monthly pre-tax income of $8,500 (this could be joint), the DTI would be 41%.
That’s cutting it a little tight. Consider chipping away at credit card debts and car loans, if possible. You want to get those monthly expenses down to get that DTI in the 38% range. That means creating and sticking to a budget.
Build Up Your Savings Account
There are a lot of expenses associated with purchasing a home, like your down payment, loan closing costs, moving expenses, utility connection fees, and the cost of decorating, furnishing, and caring for your new home. Now is the right time to start squirreling away as much as possible. Avoid that chi latte and toss the $5 in a jar.
Better still with interest rates rising make sure your account is earning at least 3%. A simple internet search will help you find all the institutions offering excellent money market rates. Some as high as 4.01%.
Determine How Much Home You Can Afford
Home prices are up 43% since the start of the pandemic. And as of the second quarter of 2022, median home prices stood at $440,300, according to the Fed. Mortgage rates also hit a new record, standing at 6%. That’s the highest they’ve been since 2008.
Here’s How to Run the Numbers
Your mortgage payment may consist of a few different factors:
- Principal and interest on your loan
- Property taxes
- Homeowners insurance
- Private mortgage insurance (if you don’t make a 20% down payment on your home)
- HOA fees
If you’re buying a $485,000 home and are making a 20% down payment. Let’s also assume you’re getting a 30-year fixed mortgage at 6.5% interest. Your total monthly payment in that scenario will be $2,995. Here’s how it breaks down:
- Principal and interest – $2,349
- Property taxes – $477 (depends on where you buy)
- Homeowners insurance – $170 (this is an estimate based on the typical rates but could vary based on your property type, its features, and where you live)
- Private mortgage insurance – $0 (this won’t apply because here, you’re putting down 20%)
- HOA fees – $0 (our example assumes there’s no HOA)
How to Calculate Affordability
Say you want to make sure your housing costs do not exceed 28% of your income. Using the example above, you’re looking at a monthly payment of $2,995. Divide $2,995 by 0.28, and you’ll get $10,696. If your monthly paycheck (or combined paychecks) is $10,696 or higher, this example home is likely an affordable home for you.
Decide What You Want in a Home
You’ve got a good handle on what you can afford. Now it’s time to get creative. Use that wonderful imagination of yours and being to visualize your dream home.
What features will be perfect for your family? What’s the ideal locations and neighborhoods for your lifestyle.
Are you willing to complete renovations, or do you prefer a home that’s move-in ready?
How large of a lot do you want? While a large lot is fantastic for outdoor activities and privacy, you’ll have more lawn and property maintenance to fill your to-do list. Before you start your search, make sure you have criteria in mind.
Don’t leave any detail out. Know exactly what you want. Remember that New Year’s Resolution is all about making dreams into reality. Think BIG!
Go House Hunting
Beyond dreaming, have you started checking out the area? Tools like Redfin and Zillow give you access to what your area looks like in terms of cost per square foot and the variability of prices by neighborhood. Check out the real estate websites and go through the ‘buy and sell’ section in the newspapers to find out the properties that interest you.
But Before You Do – Get Prequalified
Better still when you work with Embrace Home Loans® we can get you Approved to Move™.
Being Approved to Move™ means you’re presenting the seller with an offer virtually as good as cash. We do all the paperwork up front, so you have a fully underwritten approval even before you find your dream home. To sellers, that makes you a Very Important Buyer, indeed.
With many pre-approvals, you get a generic maximum purchasing budget based on a pull from a credit bureau. It’s usually not fully underwritten, and it’s only good for 30 to 60 days.
With Approved to Move™, all your information is verified – bank records, tax statements, income, assets, credit scores – giving you an offer as close to cash as possible and good for 90 days.
Don’t let your New Year’s Resolution fizzle. Instead be one of the few who makes their New Year’s dreams into a reality.
From all of us at Embrace Home Loans® we wish you the happiest and healthiest and more prosperous of New Years!