by: Mark H. Stowers
The American Dream – buying your own home. You can win the lottery or make a more realistic plan that involves budgeting and saving. The effort put forth has to be more than just wishful thinking tinged with procrastination. A realistic plan involves taking the dream of home ownership and creating a path to get there. With nearly four decades in the business, Tim B. Smith, a Senior Mortgage Banker, at First Merchants Bank, offers some practical how to’s to get from dream to reality in home ownership. The first step – start saving – now. Here’s our tips on how to budget and save to buy a house.
How to Budget and Save to Buy a House
“I would recommend that anyone who is considering purchasing a new home begin with a preapproval appointment with a qualified mortgage lender,” Smith said. “During this meeting we can review their financial picture and help them determine the amount of a mortgage they can qualify for. From there, we can review various mortgage options and the down payment required to purchase a home, varying from zero down to 20 percent down. We will provide examples with the total cash required to close so they understand the goal. Borrowers should set a goal to save from the moment they are considering a new purchase.”
Smith explains there are different ways to accomplish this goal.
“We can help clients identify various sources to develop enough funds to close on a home. These include a savings accounts, gifts from family, the sale of an asset (car, boat, coin collection etc..,) 401K loan, liquidation of an investment or retirement account, sale of their present home and inheritance,” he said.
One other helpful tactic is suggest seeking a concession from a seller to pay part or all the closing costs as allowable by the specific loan program. Budgeting is crucial in saving for a home.
“Generally, a total house payment which is made up of principal and interest, property taxes, homeowners insurance and a Homeowners Association fee on a condo should not exceed about 34 percent of their gross monthly income,” he said. “We review the borrowers other credit obligations in addition to their proposed housing expense and that total should not exceed 43% of their gross monthly income.”
There’s also another budget line to add in.
“A borrower should also consider ‘future’ property taxes. Will the property taxes increase soon after their purchase? You can contact most city treasurer offices for guidance on property taxes in their community,” he said.
And budgeting creativity is always encouraged. Cutting back on what you think you may need and what you actually need each month. And set up a specific account for those savings.
“Many clients will set up an account dedicated to saving money to purchase a new home. They fund this account monthly, often with a direct deposit from their pay checks. Others will devote bonus funds to the goal of owning a home,” he said.
Borrowers can begin their journey to homeownership by completing a preapproval application at smith’s website: www.timsmithpreapproval.com. And further education is always a plus.
“There are many homeownership classes available online and in person. We recommend www.freddiemaclearning.com,” he said.
Get that wishful thinking into gear with a savings and budget plan that will put you in a new home sooner rather than later. Be dedicated and consistent with a savings plan. Start today!
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