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Tuesday, April 1, 2014

5 numbers that every house hunter should know

As I'm sure you've come to discover, buying a home isn't a short and simple process.  It requires some research and the knowledge of a loan expert to fully understand all the mortgage mumbo jumbo and terminology that will be thrown at you.  

With that, there are a lot of figures you are required to know when purchasing a home like your down payment amount, closing costs, Debt-to-Income ratios (DTI), etc.  Basically, a lot of percentages and numbers that you don't know.  That's why we've put together a list of 5 important numbers and figures that every house hunter should know:

3% to 5%

This is how much you should plan for closing costs on the loan.  This includes any 3rd party fees, points, interest, taxes and insurance, etc.  A lot of the time the closing costs can be arranged and paid for by either the builder or seller of the home.  This is something you'll want to discuss with your Real Estate agent ahead of time before making an offer.  Typically loan closing costs amount from 3 to 5% of the loan amount so you'll want to plan for at least 3%.  Depending on the loan program you use, closing costs can also be lower than the 3%. 

3.5 % 

This is the lowest amount you'll be required to pay as a down payment on a home unless you use a 100% financing program such as a USDA or VA loan.  FHA Loans only require 3.5% of the loan amount down and Conventional loans start at 5% down.  Currently, FHA loans stand as the most affordable housing program for buyers.  


This is a newer statistic under the new "Qualified Loan" mortgage rules.  The 43% rule states that the borrower's debt, including mortgage payments, can't total more than 43% of gross monthly income.  If you don't know your gross monthly income, you might want to start there first.  

5 to 7 years

Statistically, this is how long at least you should plan to live in your new home to make it worth the cost. Based upon the national rates of home appreciation and prices, home buyers purchasing a primary residence should only consider buying if they plan to live in the home for at least 5 years minimum.  If you plan to rent out your home or are buying solely for investment purposes, this rule need not apply.  


Most home buyers put down the minimum down payment on a home, meaning that your payment will include Upfront or Monthly Mortgage Insurance (MI).  On most loan programs, once the loan amount drops below 80% you are eligible to refinance have your MI removed.  This could save a few hundred dollars on your monthly mortgage payment.  Currently, FHA is the only loan program that does not allow MI to be dropped after the loan hits the 80% mark.   

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