You may be wondering if you have enough in savings or if your income will support your Monthly Mortgage Payments A loan where the borrower pledges property as security but retains possession of it. monthly mortgage payments (the payments to repay the loan taken to purchase the home). When in doubt, it’s a good idea to get a professional opinion. Below are resources to explore.
Mortgage A loan where the borrower pledges property as security but retains possession of it. Mortgage professionals, real estate agents and/or pre-purchase counselors are usually on hand to answer questions and help you understand what you need to have in place to be ready to purchase a home.
A homebuyer education course is a class designed to teach potential homeowners about the home-buying process, including topics like Budget A plan for managing money, estimating income against expenses over a specific period. budgeting , understanding Mortgage A loan where the borrower pledges property as security but retains possession of it. mortgages , finding a mortgage lender, and managing costs associated with homeownership. These courses are often required by lenders, especially for first-time homebuyers, to help them make informed decisions and avoid pitfalls.
A credit or pre-purchase counselor will review your income and expenses to determine if you are currently ready for homeownership or what steps you need to take to become ready. The counselor will also help you determine the Mortgage Payments The regular, typically monthly, installments made to a lender to repay a home loan. mortgage payment that you can afford, identify opportunities for you to reduce your expenses, and give you an action plan to get you qualified. Many counseling organizations are able to check your Credit Report A detailed recored of your credit history, including how you’ve managed loans and bills. credit report to see if there are any issues there that need to be resolved before you apply for a Mortgage A loan where the borrower pledges property as security but retains possession of it. mortgage .
The mortgage lender will want to see that you have a steady and stable income history and that you have been working with your employer (or at least in your current industry) for at least 2 years. There are some exceptions to this, especially if you have recently graduated from college or trade school.
The mortgage lender will also want to see that your monthly housing expenses are not more than 28% of your Gross Monthly Income The total amount of money you earn in a month before any taxes or other deductions are taken out. gross monthly income (income before taxes are taken out). This is known as the “ Front-end Ratio A measure that lenders use to see what percentage of your gross monthly income would go towards housing expenses, including mortgage payments, property taxes, and homeowners insurance. front-end ratio ”. Monthly housing expenses include: the monthly Principal and Interest Principal is the amount of money borrowed or loaned, while interest is the additional cost charged by the lender for the use of that money, typically calculated as a percentage of the principal. principal and interest to repay the mortgage you take to purchase the home, Real Estate Tax Tax that local governments charge on land and any permanent structures built on it. real estate taxes , Homeowners’ Insurance An insurance policy that protects your home and belongings from damage or theft, and provides liability coverage if someone is injured on your property. homeowners’ insurance premiums, and Homeowners Association Dues Mandatory periodic fees paid by homeowners in a community to fund the maintenance and management of shared areas and amenities. homeowners association dues (if you are purchasing a Townhouse An attached, multi-floor dwelling that typically shares at least one wall with a neighboring property. townhouse or Condominium A building or complex where each unit is individually owned, while the shared areas like the hallways, grounds, and amenities are jointly owned by all the unit owners. condominium ). [Use the Affordability Calculator on this website to help you estimate what your monthly housing expenses will be.]
If you have other monthly obligations (such as auto loans, credit card debt, student loans, etc.), these obligations combined with the total monthly housing expenses should not be more than 36% of your Gross Monthly Income The total amount of money you earn in a month before any taxes or other deductions are taken out. gross monthly income This is known as the “ Back-end Ratio An estimate or judgment of the value of a property and its permanent structures. back-end ratio ”. Some mortgage lenders will allow you to carry a higher amount of debt, especially if your Credit Score A three-digit number that predicts your credit worthiness, indicating how likely you are to repay borrowed money on time. credit score is very good. (More about that later.)
Some would say that your Down Payment An initial, partial payment made when purchasing a high-priced item, with the rest of the cost paid later. down payment (the portion of the purchase price that is not borrowed from the mortgage lender) needs to be at least 20% of the purchase price of the home you want to buy. If that were true, there would be very few homeowners these days! Depending on the type of Mortgage A loan where the borrower pledges property as security but retains possession of it. mortgage you use to purchase the home, your Down Payment An initial, partial payment made when purchasing a high-priced item, with the rest of the cost paid later. down payment can be as little as 3% of the sale price. That means that you would need to put down at least $9,000 if the price of the home you are purchasing is $300,000.
Keep in mind that, while you can put down as little as 3%, you may have to pay a monthly Mortgage insurance (PMI) Private Mortgage Insurance (PMI) is a required fee for conventional home loans when the down payment is less than 20% of the home’s value, protecting lenders if the borrower defaults. mortgage insurance premium if your Down Payment An initial, partial payment made when purchasing a high-priced item, with the rest of the cost paid later. down payment is less than 20%. Mortgage insurance (PMI) Private Mortgage Insurance (PMI) is a required fee for conventional home loans when the down payment is less than 20% of the home’s value, protecting lenders if the borrower defaults. Mortgage insurance is a type of insurance that the lender takes to reduce risk in case you are not able to repay the mortgage. Some mortgage lenders offer programs through which they cover the cost of the mortgage insurance premiums. (Add this to your list of questions when you are shopping for a mortgage lender.)
Your Down Payment An initial, partial payment made when purchasing a high-priced item, with the rest of the cost paid later. down payment can come from your own savings, a gift from a close friend or family member, or from a Down Payment Assistance Financial aid to help qualified homebuyers cover the down payment and closing costs. Down Payment Assistance (DPA) program. DPA programs are usually Forgivable Loan A type of loan where the borrower is not required to repay some or all of the debt if they meet specific conditions. forgivable loans or Grant A sum of money given for a specific purpose that does not need to be repaid. recoverable grants . They are typically structured as a mortgage that is forgiven at the end of its Term The length of time you have to repay a loan. term . Program eligibility is almost always based on your level of income. This is another thing to ask your mortgage lender about. You can also find a list of DPA programs in your area by visiting www.downpaymentresource.com.
Besides the Down Payment An initial, partial payment made when purchasing a high-priced item, with the rest of the cost paid later. down payment , there are other out-of-pocket costs associated with buying a home. Some of these costs are paid before you finalize the purchase (or Close Closing is the final step in a real estate transaction where all legal documents are signed, money is exchanged, and ownership of the property is transferred from the seller to the buyer. close ), such as the Home Inspection A professional, visual evaluation of a house’s physical condition, from the foundation to the roof. home inspection , Appraisal An estimate or judgment of the value of a property and its permanent structures. appraisal , first year’s Homeowners’ Insurance An insurance policy that protects your home and belongings from damage or theft, and provides liability coverage if someone is injured on your property. homeowners’ insurance premium, etc. Other Closing Costs Closing is the final step in a real estate transaction where all legal documents are signed, money is exchanged, and ownership of the property is transferred from the seller to the buyer. closing costs are paid at the time of closing, such as mortgage lender fees, attorney fees, Title Insurance A one-time payment policy that protects agains past title problems, such as liens, fraud, or errors in public records, that could cause a financial loss. title insurance , taxes, etc. You can estimate your closing costs to be about 5% of the purchase price of the home you are buying. This is just an estimate. The closing costs can be higher or lower depending on the circumstances involved in the purchase. Some closing costs can be financed within the mortgage. (Add this to your list of questions for your lender.) If you are eligible for a Down Payment Assistance program, you may be able to use some or all of the program funds toward your closing costs.
All mortgage lenders will order a Credit Report A detailed recored of your credit history, including how you’ve managed loans and bills. credit report to determine if you are a “good risk”. Your credit report contains information from 3 separate credit reporting sources that provide details of all the Credit An amount of money available to you because you paid for something earlier, or a record of this money. credit that has been extended to you, including the amount you borrowed, monthly payments, and how promptly you made your payments. Each of the 3 Credit Reporting Agency A company that compiles and sells your credit report, which is a detailed record of your borrowing and repayment history. credit reporting agencies will score your credit based on the information they have on you. Most mortgage lenders want to see that the middle credit score of the 3 credit reporting agencies is no lower than 620. It is best to avoid applying for any loans or credit cards as you get close to applying for a mortgage as Credit Inquiry A request by a lender or company to check your credit report to assess your creditworthiness. credit inquiries will lower your overall credit score.
The US Department of Housing and Urban Development (HUD) approves housing counseling agencies across the nation. A list of these agencies can be obtained by calling 800-569-4287 or by searching online at https://answers.hud.gov/housingcounseling/s/?language=en_US.
Use the Affordability Calculator on this website to help you estimate what your monthly housing expenses will be.
Real estate tax information, including assessments, can be accessed through public records. Here are some ways to find it:
The cost of homeowners’ insurance varies significantly based on numerous factors. The average annual cost in New Jersey is around $1,200 to $1,800
In New Jersey, you are not legally required to hire an attorney to represent you in a home purchase, but it is highly recommended. An attorney can review contracts, negotiate terms, conduct title searches, and represent your interests throughout the entire transaction, potentially saving you from future legal issues.