First things first: it's time to review your financial picture, consider the expenses involved in owning property, and determine your budget. Can you afford to buy a home? Let's find out.
Can You Afford to Buy a Home?
All first-time homebuyers should take a hard look at their personal finances. Get a better grasp of your financial situation by using our:
The Costs of Homeownership
As a renter, you do not have to pay for a variety of expenses that are the responsibility of the landlord. When you buy a home, you take on these costs. Some fees are part of your monthly mortgage payment while others are not. Among the costs paid by homeowners but not by renters:
- Property taxes and special assessments
- Home/hazard insurance
- Property maintenance
- Association and membership fees (for condominiums, townhomes and some developments)
Credit and Credit Histories
Your credit history is a history of how you have borrowed and paid debt. Your credit history, which is found in a credit report, helps a lender determine whether you have the ability to purchase a home. Your credit history is also one factor used to determine your credit score, generally called a FICO score. FICO scores range from 300 to 850, and lenders believe that borrowers with higher scores are more likely to repay their loan.
- Homebuyers can obtain a copy of their credit report and FICO score by visiting www.myfico.com. There is a charge for obtaining your FICO score.
- However, homebuyers can obtain a free copy of their credit report by visiting www.annualcreditreport.com. This central site allows you to request a free credit report once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. Beware of other sites that claim to provide a free credit report to you. This site will only provide you with a copy of your credit report, not your FICO score.
- Learn more about Understanding Your Credit Report.
- For more information, view our Credit Questions and Answers.
The downpayment, the initial payment made when buying a home, will impact your ability to get a mortgage as well as the loan’s interest rate and terms. Lenders view buyers who contribute their own funds to the purchase of a home as a better overall credit risk.
If you’re making a downpayment of less than 20% of a home’s price, you’ll also get mortgage insurance, which banks require in exchange for the larger loan.
Private mortgage insurance (PMI) allows borrowers to purchase homes with a low downpayment (less than 20% of the purchase price), and protects the lender in the event the buyer fails to repay the loan. The cost of PMI is added to your monthly mortgage payments and closing costs.
Questions About What
You Can Afford?
Do you have questions about the financial aspects of homeownership? You’re not alone. Visit our common questions and answers.