Buyer's Resources

Buying a home is one of the most important decisions that most people will ever make. Donna Vinnard, Owner/Broker, NorCalWest Realty will guide you throughout the purchasing process.  Along with the benefits of homeownership there are also certain responsibilities.

Are you ready for homeownership? Look at your current situation and determine if:

• You have a continuing and reliable source of income prior to applying for the loan.
• You have a credit history that shows you're ready for homeownership.
• Your total debt is manageable and you can afford to take on the costs associated with homeownership.
• You have money saved for a down payment and closing costs.

Once you fully understand your current situation, it's important to look at the pros and cons of homeownership to make the best decision for you and your family.

Benefits of Home Ownership

Homeownership has many advantages - both financial and personal. But buying a home is an important decision. Look at the benefits and the differences between homeownership and renting to better understand if owning a home is right for you.

What are the benefits of homeownership?

• Tax savings.
  You may earn significant tax savings because you can deduct mortgage interest and property taxes from your federal income tax and many states' income tax if you itemize your deductions.
• A more stable monthly housing expense.
  Your monthly housing loan or mortgage expense can remain the same for the life of your mortgage, depending on the type of loan you choose.
• Equity.
  You may build equity in your home over the life of your loan, which allows you to plan for future goals such as your retirement.

Homeownership is not right for everyone. It may not be the right time in your life or you may not like the commitment associated with owning a home. Here are some differences between renting and homeownership:

• Renters are typically free from maintenance obligations such as repairs or lawn care.
• Homeowners often have more freedom in decorating, landscaping, etc.
• Renters can move more easily and more quickly than homeowners and there are higher costs associated with buying and selling a home.
• Homeowners have a financial investment and may build equity in their home.

How Much Can You Afford?

To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is just a rough estimate - the actual number will vary based on factors such as your debt and credit history.

Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.

• Housing Expense Ratio
  Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.
• Debt-to-Income Ratio
  You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.

A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget [PDF 76K ]. Don't forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.

Myths About Homeownership

Lenders evaluate mortgage applications a lot differently today than they did even 10 years ago. And even more has changed in the last 20 years. What used to close the door to homeownership may not be a factor today.

Here are some common homeownership myths:

Myth: You need great credit to become a homeowner.
Fact: You may still be able to buy a home with less-than-perfect credit. And remember, you can improve your credit over time.

Myth: You need to put 20% down to buy a home.
Fact: There are many types of mortgage products and programs that allow low and no down payments. But remember to factor in other costs such as closing costs, property taxes, moving expenses, and repairs.

Myth: You can't buy a home in the U.S. if you're not a citizen.
Fact: If you're a legal resident, you can purchase a home in the U.S.

Myth: If you don't have a bank account or credit cards, you can't qualify for a mortgage.
Fact: Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don't have a bank account or credit cards. You'll likely need to keep records showing a history of payments you've made for items such as rent, utilities, and car payments.

Myth: Lenders share your personal financial information with other companies.
Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don't want it to be shared.

Myth: If you're late on your monthly mortgage payments, you'll lose your house.
Fact: If you have a financial hardship, like the death of your spouse or a medical emergency and fall behind, it's possible to keep your home and get back on track if you contact your lender early.

Myth: You can't get a mortgage if you've changed jobs several times in the last few years.
Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you've had a stable income.