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Home Ownership Or Renting?

Tired of working so hard just to build your landlord’s equity instead of your own? Been dreaming about paint swatches and obsessing over Pinterest projects? Making that leap from renting to owning a home comes with many perks — both financial and emotional. And even though home ownership comes with great responsibility, you might be surprised how achievable it can be.

Certainly, the best time to trade security deposits for a down payment is different for everyone. If you’re thinking about switching from renting to owning, ask yourself these five questions to decide if you’re ready to embark on the home ownership adventure.

1. Are You Financially Prepared?

Let’s not beat around the bush: Buying a home requires a substantial financial commitment.

There’s a down payment, of course. “On average, you want to have a minimum of 5% to 7% of the cost of the home you’re targeting,” says Jason Harriman, a REALTOR® with San Antonio-based Heyl Real Estate Group at Keller Williams Realty. Then, add 3% to 6% for closing costs, which will vary based on where you live and what taxes your state and city require you to pay.

Tip: Keep in mind if you put down less than 20%, you’ll pay PMI, private mortgage insurance, which protects the lender in case of default. Usually, it’s about $50 to $200 a month. But once you reach a certain threshold on your loan to value ratio, you can cancel PMI.

A healthy credit history is also important. Most borrowers will start to qualify for a mortgage with a minimum score of 620 — but the most competitive interest rates will be offered to those with a score of 700 or above. So if you haven’t started practicing those good credit habits yet, it’s time to start developing them.

One of the trickiest hurdles for young adults, so many of whom are lugging around student loan debt, is the debt-to-income (DTI) ratio. Mortgage companies want borrowers to have a certain level of cash flow each month, and that means taking into account how much you’re paying out to other lenders. Ideally, a borrower’s debt-to-income ratio — how much you pay toward debt each month divided by your gross monthly income — should fall below 36%. (Strictly speaking, a loan is considered able to be paid if the DTI doesn’t exceed 43%.) If yours doesn’t, think about how you can get that debt needle moving in the right direction.

“The best way to do this is to pay of any unsecured debts like credit cards and personal loans, and keep them as close to a zero balance as you can,” says Harriman.

2. Are You Prepared to Make Compromises?

Kathleen Celmins, who manages the personal finance site “Stacking Benjamins,” was financially prepared to manage a mortgage. But once the house hunting began, she quickly realized she was priced out of the homes she had envisioned.

“I originally wanted a single-family home with a yard and in a great neighborhood,” she says. But her given price point, the homes she could afford ended up being in, well, not the greatest neighborhoods. “At one point, we looked at a property that was directly behind a strip club,” she laughs. “We didn’t even go inside.”

After several weeks of searching, Celmins realized she needed to find a middle ground. “In my price range, I could get a not-so-great house in a not-so-great neighborhood. Or, I could get a really cute condominium with a gas range and granite countertops,” she says. “It was something I compromised on, I gave up a yard for having fancy stuff in my condo.”

3. Are You Emotionally Ready?

When it comes to renting, surprises don’t require much emotional investment. The rent goes up? You can move. The fridge is on the fritz? The landlord will send someone over. Home ownership is a bit more hands-on. If the toilet breaks, it’s time to start reading Yelp reviews. And if property taxes unexpectedly rise, it’s on you to appeal or pay up.

“My homeowners association fee doubled in the first year I owned by condo,” says Celmins. “Then my real estate taxes were reassessed. My mortgage payment went up and I panicked. I didn’t even know that could happen.”

Of course, having the financial flexibility to cover those unexpected things is important. But don’t overlook the importance of having the mental and emotional capability to dealing with them responsibly when they arise. Everything could be peachy for months, and then three maintenance issues might spring up in the same week. Stress management and problem solving skills are home ownership biggies.

4. Will Owning Pay Off in the Long Run?

Depending on the home you choose and where you live, you may pay a lower mortgage than you paid for rent. But even if you don’t, there’s still the financial advantage of building equity in your home, instead of lining your landlord’s pockets.

5. Has Your Lifestyle Outgrown Renting?

Many people find a rental can only take them so far. When you’re ready to start a family, you’re going to want a few extra rooms, and that can get expensive with rising rental rates. A yard also provides a safe place for Junior to pay or for a dog to scamper around. And speaking of Fido, the vast majority of renters have trouble finding a place that will allow for their pet. Home ownership can end that stress for good.

Then there are renovations. If you’re itching to test out your DIY skills and personalize your space, you’re probably ready to own. Landlords who allow property renovations — especially DIY projects — are few and far between.

Buying a first home is a big change — both from a financial and an emotional perspective. Still, for many, home ownership can be one of the most rewarding life choices one can make. “Turns out it’s awesome,” says Celmins. “I love it so much.”

Source: Alaina Tweddale | houselogic.com

Posted in: Buyers, News and Announcements, RE/MAX Advanced Tagged: Building Equity, Buying a Home, Buying A New Home, First Time Homebuyers, Fort Collins, Guide for First Time Homebuyers, home, Home Ownership, Homebuyers, northern colorado, Owning a Home, RE/MAX, RE/MAX Advanced, Renting

Purchasing a Condo? Make Financing Easier!

Purchasing a Condo

In the process of choosing a home, you may consider buying a condo. There are a number of things to be aware of regarding your mortgage when purchasing, and this short article will help give you the background and the tools necessary in order to purchase your new condo with the lease amount of stress! We will start with some big picture items, and finish with a little more detail for each loan product.

“Is the condo warrantable?”

The term thrown around the most when someone is considering a unit is “warrantable,” as in “is the condo warrantable?” Warrantability is about whether the proposed mortgage on the property can be sold to Fannie Mae, Freddie Mac or another entity. Fannie Mae and Freddie Mac purchase many conventional loans, but they do not purchase government loans like FHA. Each loan type (conventional, FHA, etc.) has its own guidelines for condos. One may not be “warrantable” or salable with FHA, but warrantable with Fannie Mae.

There are more rules surrounding condos due to the potential risks to the lender. They have characteristics that are historically risky. In order to explain without diving too much into the weeds, lenders want to be sure that the property they are financing on will keep its value, not be involved in litigation, etc. This is the reason for more stringent rules when acquiring a loan secured by a condo.

Do not let the extra rules scare you though! A knowledgeable lender will guide you regarding the details of your loan and the property’s parameters. However, there are certain things you can be aware of ahead of time on your hunt for your condo. These things are highlighted below.

“Purchasing or Renting?”

With a conventional loan, your lender will review the property’s insurance, the HOA’s budget, etc. Many buyers can get caught up on how many of the units are rentals and how many are occupied by the owner. If you are purchasing a home in which to live, this question doesn’t matter. If you are purchasing a rental, then it matters. Additionally, if you are willing and/or able to invest a 10% down payment, the rules get much easier!

Approval by the FHA

With an FHA loan , the only thing to be aware of is whether or not the condo project is approved by FHA. IF the approval has expired, then the condo is not eligible for FHA financing. A VA loan works the same way with its own approved list of condo projects.

When determining the type of loan to use when purchasing a unit, your options may be limited. For instance, if you can only qualify for an FHA loan, but you want to purchase a condo, you will only be able to buy a condo that is approved by FHA. Again, a good loan officer will guide you through all of the rules to help you get the best loan for your new condo!

Source: Dexter Finley

Want more information?

New Rules For Warrantable & Non-Warrantable Condo Mortgage Loans | themortgagereports.com

Condo-Buying Walkthrough: Obtaining a Mortgage For Your Condo | investopedia.com

Posted in: Buyers, News and Announcements, RE/MAX Advanced Tagged: Buyers, Condo, Condo Buying, FHA, Finance, Fort Collins, northern colorado, RE/MAX, RE/MAX Advanced, Renting, Warrantable

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© 2023 · Ft Collins Homes | RE/MAX Advanced, Inc. · Information deemed reliable but not guaranteed. All Rights Reserved.

Accessibility: RE/MAX Advanced is conducting periodic site audits in order to identify potential accessibility issues and is implementing changes to improve accessibility. For more information, contact RE/MAX Advanced.