Beyond Your Credit Score: When talking about the affordability of a home, the focus is usually on how much you qualify for, your income, and your monthly bills. But did you know that the property itself also affects how much you can afford?
Even homes that are priced the same and are in the same neighborhood can have vastly different monthly payments depending on factors that we’re about to share with you.
Because there are so many variables, many that can save you money in the immediate and long run, we make sure that we are available to give you that personal attention –beyond the web.
Contact us today for personalized home loan guidance today.
Property Factors That Affect Affordability
1. Property Usage
How you occupy the property can affect your mortgage pricing options. Will this it be a primary residence, a second home, or an investment property? Your property’s occupancy will be verified during underwriting to determine your mortgage options. (Note that property usage depends on the occupancy, not how many homes you currently own or have purchased in the past.)
For the property to be considered a primary residence, you must occupy the home for most of the year, along with other specifications. Primary residences have the lowest down payment requirements –as low as 3%!
If you live in the property just part of the year, and it’s more than 50 miles away from your primary residence, then it is considered a second home. Second homes may have similar rates to primary residences. However, they require a larger down payment.
If the home is going to be a rental or it’s within a 50-mile radius of your primary residence, then it is usually considered an investment property. Investment properties typically have the highest interest rates as well as a higher down payment requirement.
2. Type of Property
Trying to decide between a home or a condo? Consider this: condos and townhouses usually have higher interest rates plus you will also have to pay monthly HOA fees. HOA fees will be factored into your loan qualification. Also, know that manufactured mobile homes or non-warrantable condos usually don’t meet conventional Fannie Mae guidelines which means it might be more challenging to get funding for these types of properties.
3. A Competitive Market
If you end up in a bidding war, it could push you over your budget. Besides affecting your immediate affordability, it can also mean changes to your loan if you are right on the cusp of a jumbo loan. A jumbo loan is one that is larger than the local loan limits, and the federal government determines these limits. Jumbo loans have special underwriting requirements that affect minimum down payment, your required assets, as well as the credit score needed to qualify. If you think that you will be pushed into jumbo loan territory, give us a call to discuss eligibility requirements and how your affordability might change.
4. Property Taxes
Property taxes vary from area to area and are determined locally. Tax in certain areas can be high and can add significantly to your monthly mortgage payment. Also, remember that tax rates change could potentially rise. Research the tax history to get a better idea of what to expect; however, it not a guarantee.
5. HOA Fees
We briefly touched on HOA in an earlier tip, but here’s a little more info. Homeowners association (HOA) monthly fees required in by some condo communities and, sometimes, single-family home neighborhoods. These fees pay for maintaining and improving the property and as an additional expense, can be significant over time. Please, remember that HOA fees are factored in your loan qualification.
6. Utilities and Maintenances Features such as a pool or large yard need to be maintained, which means adding the expense to your budget. Consider how much it will cost to maintain or repair before you purchase a home
To get a clear picture and to be better prepared, estimate the total cost throughout a year. Then divide it by 12 and start setting that amount aside each month in a savings account. Then, when those expenses arise after you purchase your home, you’ll be prepared to pay and have a savings set aside to help pay for it.