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    Housing Market Has Altered the Math of Moving

    The housing market has altered the math of moving for nearly everyone.

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    Source : www.nytimes.com

    Buying a House? What Factors to Consider

    If you are ready to buy a house you will need to consider various factors to determine if you can afford it—ranging from income to mortgage rates.

    If you feel like you're ready to buy a house, the first question you're likely to ask yourself is, "how much can I afford?" And answering that question means taking a look at several factors.

    Before you snap up that seemingly great buy on a home, learn how to analyze what "affordability" means. You'll need to consider various factors ranging from the debt-to-income (DTI) ratio to mortgage rates.

    KEY TAKEAWAYS

    Determining your debt-to-income ratio (DTI)—more specifically, the front-end DTI—is an important factor in getting a mortgage.

    How much downpayment you can afford will impact your ability to purchase a home.

    Beyond the property's price tag, a host of other financial and lifestyle considerations should figure into your calculations as to whether you can afford to buy a house.

    You should also evaluate the local real estate market, the economic outlook, and the implications of how long you want to stay put.

    You'll also need to consider your lifestyle needs, present, and future.

    Investopedia / Ellen Lindner

    Understand Your Debt-to-Income Ratio First

    The first and most apparent decision point involves money. If you have sufficient means to purchase a house for cash, then you certainly can afford to buy one now. Even if you didn't pay in cash, most experts would agree that you can afford the purchase if you can qualify for a mortgage on a new home. But how much mortgage can you afford?

    The 43% debt-to-income (DTI) ratio standard is generally used by the Federal Housing Administration (FHA) as a guideline for approving mortgages.1 This ratio determines if the borrower can make their payments each month. Some lenders may be more lenient or rigid, depending on the real estate market and general economic conditions.

    A 43% DTI means all your regular debt payments, plus your housing-related expenses—mortgage, mortgage insurance, homeowners association fees, property tax, homeowners insurance, etc.—shouldn't equal more than 43% of your monthly gross income.2

    For example, if your monthly gross income is $4,000, you multiply this number by 0.43 to get $1,720, which is the total you should spend on debt payments. Now, let's say you already have these monthly obligations: Minimum credit card payments of $120, a car loan payment of $240, and student loan payments of $120—a total of $480. That means theoretically, you can afford up to $1,240 per month in additional debt for a mortgage and still be within the maximum DTI. Of course, less debt is always better.

    Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take.3 One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).

    What Mortgage Lenders Want

    You also need to consider the front-end debt-to-income ratio, which calculates your income vis-à-vis the monthly debt you would incur from housing expenses alone, such as mortgage payments and mortgage insurance.

    Usually, lenders like that ratio to be no more than 28%. For example, if your income is $4,000 per month, you would have trouble getting approved for $1,720 in monthly housing expenses even if you have no other obligations. For a front-end DTI of 28%, your housing costs should be under $1,120.

    Why wouldn't you be able to use your full debt-to-income ratio if you don't have other debt? Because lenders don't like you living on the edge. Financial misfortunes happen—you lose your job, your car gets totaled, a medical disability prevents you from working for a while. If your mortgage is 43% of your income, you'd have no wiggle room for when you want to or have to incur additional expenses.

    Most mortgages are long-term commitments. Keep in mind that you may be making those payments every month for the next 30 years. Accordingly, you should evaluate the reliability of your primary source of income. You should also consider your prospects for the future and the likelihood that your expenses will rise over time.

    Getting approved for a mortgage up to a certain amount doesn’t mean you can actually afford the payments, so be honest about the level of financial risk that you are comfortable living with.

    Can You Afford the Down Payment?

    It's best to put down 20% of your home price to avoid paying private mortgage insurance (PMI). Usually added into your mortgage payments, PMI can add $30 to $70 to your monthly mortgage payment for every $100,000 borrowed.4

    There may be some reasons that you might not want to put down 20% toward your purchase. Perhaps you aren't planning on living in the home very long, have long-term plans to convert the home into an investment property, or you don't want to risk putting that much cash down. If that's the case, buying a home is still possible without 20% down. You can buy a home with as little as 3.5% down with an FHA loan, for example, but there are bonuses to coming up with more.5 In addition to the aforementioned avoidance of PMI, a larger down payment also means:

    Source : www.investopedia.com

    How To Buy And Sell A Home At The Same Time

    Buying a new home while selling your current home can be overwhelming. Find out how to manage this process in the least disruptive and most cost efficient ways.

    How To Buy And Sell A Home At The Same Time

    VICTORIA ARAJ6-MINUTE READ

    MARCH 29, 2022 Share:

    Moving is always stressful, whether you want to sell your house and buy a new one because of a job transfer, you need to move to a better school district or your current house isn’t big enough for your burgeoning family.

    That stress multiplies when you're trying to sell your current home at the same time. It’s like playing a game of mortgage chicken.

    But if you follow these steps, you can simplify the home buying process, lower your stress and make it a (nearly) painless experience. Before we get to the steps, though, here are some important factors to consider.

    Should You Buy Or Sell First?

    There are several schools of thought when deciding whether to buy or sell a house first, and each person will have their own considerations. If you’re selling a house with a mortgage, some people say you should sell your old home first so you’re not stuck with two mortgages at the same time. Others say you should wait to sell later so you’re not in between homes.

    Buying Before Selling

    Pros

    The most obvious pro about buying a house before selling your current one is that you know you’ll have a place to go when you sell your place. There’s nothing more frustrating than having to find a short-term rental, especially if you have pets, kids or heavy furniture like a piano. Many places don’t allow month-to-month rentals if you’re a new tenant. That means you may have to pay for multiple months of rent even if you only need a month.

    Plus, if you have a home to move into, then you won’t have to pay for moving expenses twice. You also won’t have to worry about living out of boxes.

    Cons

    Not selling your house before you buy your next one could leave you on the hook for two mortgage payments at the same time. Homeowners need to have a plan for how they’ll pay for two mortgages, or have a plan to sell their house fast. This could be financially devastating, especially if selling your home proves harder than you realized.

    Selling Before Buying

    Pros

    When you sell your home before buying a new one, you’re no longer on the hook for paying two mortgages at once. This means you don’t have to feel rushed into making a housing decision. If you have somewhere to stay after closing, then you can also take your time and make sure your next home purchase is the right one.

    Cons

    When you sell a home before buying one, you’re leaving it up to chance that you’ll find something that fits your lifestyle and your budget. Some people have discovered through the process of selling their home that they’re better off staying put and remodeling.

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    How To Sell A Home And Buy A New One In 6 Steps

    Whether you decide to sell your home first or buy your next house first, the steps to take are the same.

    Step 1: Assess The Market For Your Current And Prospective Home

    In a perfect world, you’d move from a seller’s market to a city that has a buyer’s market. The situation lets you achieve the highest selling price for your house and the lowest buying price for your new home.

    In reality, there are many factors that affect the housing market. Even different cities may have hyperlocal housing markets. An area with good schools may always be a seller’s market, while a suburb with an increase in crime may suddenly be a buyer’s market.

    Step 2: Decide If Now Is The Right Time To Make A Move

    Some seasons are better for home buyers than others. The late spring and summer are popular, especially with families who don’t want to move during the school year. Winter is generally slow, especially in areas with heavy snowfall. You should also talk to the real estate agent to see if there are any other factors you should be aware of.

    Even if it’s not the best time to put the house on the market, you can still get it ready to sell. The sooner you’re prepared, the easier the process will be once you actually get it going.

    Step 3: Prepare Your Home To Show Well

    Any homeowner who’s lived at their current home for a while knows how much stuff is in their house. Even if you’re weeks or months away from listing your house, take this time to declutter and throw away anything you don’t want to take with you. The process of getting your home ready is the first major step and shouldn’t be taken lightly.

    When you’re unsure if you want to get rid of an item, ask yourself, “Do I want to move this in a few weeks?” If the answer is no, toss it. You can also set up a yard sale to make some money from those unwanted items.

    Go around the house and fix up any big holes. If you have a room that’s painted a bright color, pick a neutral color to repaint it.

    Use this time to evaluate your finances. Think about working with a mortgage lender to get preapproved so you can move quickly when you find the right new home.

    Also, figure out how much you can afford to pay for your new house, especially if you’re looking at a more expensive property.

    And if you’re thinking about a bigger home, it might be time to think about more furniture. Just be careful not to go overboard with credit card purchases to finance all this. You need to keep your debt-to-income ratio (DTI) in order.

    Source : www.rocketmortgage.com

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