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Renting then Buying Same Home - The Bills.com Blog
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Renting then Buying Same Home
Question: I have been renting a single-family 3/2 home (1100 sq ft.) for 2.5 years. My landlord did a refi 6 mos. ago based on the market. The market has changed and my wife and I have been asked if we would like to buy the house. We were transferred and are really starting over and cash is tight. We would love to have this house due to theschools the proximity to work but it is 10 yrs old, and credit is poor. Any thoughts?
Answer: Thank you for visiting Bills.com. Here is an answer to your question - which is a good one... but complicated.
First of all, let me list all of the variables:
1. value of the home;
2. amount of a down payment;
3. how much your monthly rent is; and
4. how much your monthly mortgage payments (including taxes and other fees) will be if you purchase; 5. if you can get approved for the loan; and 6. if it is a good investment.
I will take each in turn.
#1: What is the value of the home? You should go to zillow (www.zillow.com) or other appraisal sites to get a good sense for the home's value. You can also ask to see the appraised value of the home from when the current owner had his/her refi done.
#2: How much can you put down? For the best rates and the highest probability of getting approved, a general rule of thumb is that 20% down (or borrowing 80% of the value of the home) is a good place to start. If that is too high, many first time home buyer (FHA) programs allow you to put down even less than 10%.
#3 and
#4: You will want to make sure that in the new program, you can make your monthly payment. Get several competing loan quotes and compare the monthly obligations under different programs. The most conservative loan is a 30 year fixed mortgage, where the rate will not change for the life of the loan. The most aggressive, and lowest monthly payment, is a negative amortization loan or an interest-only loan. Be sure to factor in property taxes, PMI (mortgage insurance) and any condo or association fees as well. Also, be aware that your mortgage interest is tax deductible, so that can help you save on your monthly obligation, relative to renting.
There are many calculators and tools online, to find your mortgage monthly payment.
#5: Shop around and see if you qualify for your required mortgage. Bills.com makes it easy at https://www.bills.com/mortage/refinance .
Your total debt level, and your debt to income ratios will definitely impact your ability to obtain a loan. However, they are not the only factors.
Credit rating is a
major factor in making a loan decision, and if you are able to prove that you can repay those debts, it could benefit you.
Additionally, accumulated equity or have a sizable down payment, that could provide cushion in an LTV (loan-to-value) calculation, could help to get you approved. Also, your income will be a major (possibly the most important factor) as it will determine your DTI (debt-to-income ratio). Most of all, it cannot hurt to apply and see what lenders think of your own situation.
#6: Make sure that if you buy the home, that it is a good investment. Will it appreciate or depreciate over the life of your ownership. This involves looking at comparable sale data, the school district, employment trends in your area and other local factors. Your home is likely your largest single investment, so make sure that you are making a good investment.
I hope that his helps you make the right decision for your particular situation, but be sure to shop around and find a loan that meets your needs.
If you would like more information, please visit our mortgage resource page .
Also, make sure to get a free financial health check-up with Bills IQ!
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