You are the best (and probably the only) person to know if you’re ready to become a homeowner. For most of us, it is one of the most important purchases that many will ever make. Fortunately, this is something most of us only do a handful of times in our life. The right time is when you feel financially and emotionally ready to take on responsibility. Alas, there’s no clear-cut guide to discern, especially for first-time buyers, if you are “ready”. However, you can look at a few key milestones to know if you’re ready for the financial responsibilities of homeownership. Let’s take a look at some key things you can do to best prepare yourself.
Prepare A Budget
It is important to have a clear idea of how much money is coming in and going out each month and coming up with a budget just does that. It will help you create and save for your financial goals and determine if a mortgage is manageable. Look for scenarios and potential ways to save money. It’s hard to know what kind of mortgage you can afford if you don’t have a budget in place. There are countless strategies, tools, and best practices when it comes to budgeting. The goal is to determine what works best for you while giving you a clear and realistic picture of your finances.
Some consumers stick to the proven spreadsheet method, keeping track of their monthly expenses in one editable document. Others prefer online tools and applications to track expenses and budgets. You can track expenses as they arise, and some products will even tie all of your financial accounts into one profile. This form of real-time budgeting has become increasingly powerful for many potential buyers. Regardless of your budgeting method, the important thing is knowing where your money is going each month. Record all of your expenses over the past month or more and make sure you include them all, such as ATM fees and other easily overlooked costs.
Put a Leash on Your Debt
Your major monthly debts will play a big role when lenders look at what you can afford and how much home you can buy.
Mortgage lenders look at your debt-to-income ratio (DTI) before they consider approving your application. As the ratio implies, it’s calculated by dividing your outstanding debt by your income multiplied by 100. For example, let’s say you have a debt of USD 2,000 and an income of USD 4,000. That means you have a DTI of 50%.
Most mortgage lenders, especially VA loan lenders, look at a DTI ratio of 41% or less so, with a DTI ratio of 50%, you have a long way to go. Then, you can choose to have more income or choose to pay off some of your outstanding debts.
Practicing Your Mortgage Payments
You must remember that taking out a mortgage loan means additional expenses on your part. While waiting for the time you become an official homeowner and thus start paying your mortgage, you can “practice” setting aside a portion of your income so that when the time comes, you’re already used to it.
Think about how much your mortgage payments will be versus your rent. Let’s say you’re paying USD 1,000 for rent, and your possible mortgage payables would be around USD 1,400. That means you have to set aside USD 400 every month as “practice” for your mortgage payments.
Build an Emergency Fund
Remember the practice payment you’ve set aside in the previous paragraph? Well, you can make the most out of it by setting it aside as emergency funds. This will serve as your safety net if you encounter something unforeseeable such as a job loss or sickness, AND you’ve already been approved for a mortgage loan.
With the right financial preparation, mortgage payments will slip comfortably into your monthly routine. Plus, you’ll have the diligence, experience, and funds necessary to make that payment without a second thought.
Properties You Can Purchase with a VA Loan
The VA mortgage loan program was created as a way for our dear veterans to own a home. This program focuses on helping qualified borrowers purchase residential properties they’ll live in full-time.
This article will show you a few properties you can buy with a VA loan.
Single-family homes are the core of the VA program. Since single-family homes are a great option for a wide variety of buyers, they are the most purchased properties under the VA loan program.
If you prefer living in a condominium for practical purposes, you can purchase one with the VA as long as the VA approves the condominium. However, searching for a VA-approved condominium may be a hassle if you’re acting alone, so asking your lender for help and a realtor that knows the ins and outs of the VA program can make the process easier. A great lender can even provide a better value by having a development (originally not on the list) approved under the VA program, but this may take months.
The VA also allows a VA construction with zero down payment. However, it’s hard to find lenders willing to finance the construction of a new home in today’s economic environment. A more common approach is getting a builder’s construction loan and refinancing the short-term loan into the VA program.
Do you know that military buyers can purchase up to four one-family residential units in a multi-unit property? Multi-unit properties may not be the first on your list of properties to buy, given that it involves a significantly bigger budget, but if you have the capacity, it can be a practical choice. With a typical 4-unit property, you can live rent-free by occupying one unit and renting out the rest.
You can buy other properties under the VA program, such as a manufactured home or even a modular home. What’s important is that the veteran purchasing the home will use it for his primary residence (or at least a portion of it, in the case of a multi-unit home). The VA will not grant loans if the veteran is going to use them purely for investment purposes.
To learn more about VA loans and which properties can use VA loans, contact us today!