As the last decade has shown us, it's not enough to get into a home of your own -- you have to be able to stay there comfortably and affordably, including having enough of a cushion to ride out rough times.
That's why the secondary market is taking a proactive interest in making sure buyers buy within their means - the true meaning of sustainability. Fannie Mae, one of the giant government-sponsored entities that buys mortgages on the secondary market, has important guidelines for you so that you not only get the right house, you can afford to stay there.
Here are Fannie Mae's five steps to sustainable home ownership:
Get educated. The first thing you should do is to learn all you can about mortgage loans so you can apply for the best loan for your situation. Fixed-rate mortgages, adjustable-rate mortgages, FHA and VA loans, conforming jumbo loans, hybrid loans and others each have an advantage for the right borrower.
You also need to know what makes the same loan cost you more than others, from credit scores, to paying discount points to bring the interest rate down, to varying lenders' fees.
Your real estate agent may know of local homebuyer education programs, and neighborhood banks or mortgage lenders who may help you obtain a loan. Fannie Mae recommends contacting the HUDto find housing authorities in your area. Local HUD housing counselors can alert you to special buyer programs for which you may qualify, such as no-down-payment loans for teachers, law enforcement, nurses, firefighters and other workforce personnel.
Get Your Finances in Order. All government guaranteed loans such as FHA and VA and conforming loans that are sold to the secondary market to Fannie Mae and Freddie Mac are enforcing stricter guidelines.
Before you choose a home, you must know if you can qualify to buy it. You need to obtain a copy of your credit reportthat includes your credit score. If your credit score is low (anything below 620), take the time to improve it. If you find errors on the report, take the time to correct them.
Establish a Budget. When you apply for a loan, your lender will tell you how much you can afford based on your maximum gross income and income-to-debt-ratios. To buy safely within your means, your mortgage payments should not exceed 28 to 33 percent of your total monthly gross income. If you have debts such as student loans, car payments, child support payments, or revolving credit cards, your debts plus your mortgage should not exceed 36 to 40 percent of your total monthly gross income.
Create a monthly budget that itemizes your recurring bills, and then add in the bills you'll receive once you own your home -- yard maintenance, HOA fees, utility bills, and home maintenance and improvement. If you can pay all these bills, plus contribute to a savings plan such as a 401K, Sep IRA or other, you are ready to buy a home.
Start Saving. Depending on the type of loan you think you'll obtain, you should have cash reserves to make your down payment and closing costs. Earnest money, a deposit to the seller, is usually required, beginning at about $500 to two percent of the purchase price. This is subtracted from your closing costs at closing.
Get pre-approved. A preapproval means you have shared your financial information with a lender. The lender has pulled your credit report and matched your income and debt ratios to various loan programs to see where you qualify best. Once you and the lender agree to a loan program, the lender will issue you a preapproval letter with a maximum amount you can spend for the loan. Use the preapproval as your best guide to shop for the right home.
A lender preapproval isn't bulletproof. You can't apply for a loan until you have the address of the home you ish to buy, which means the loan won't be approved until it goes through the underwriting process. If the underwriter approves, you've got your loan and your new home.
Homeownership isn't for everyone, but it may be the right move for you. If you intend to stay in your home a number of years to build equity, and you can afford your home without undue financial stress, you're a good candidate to be a homeowner.