June is National Homeownership Month, and everything seems to be falling into place for first-time home buyers. It’s a buyers’ market, interest rates are at all-time lows, and first-time home buyers can qualify for a new, hefty federal tax credit.  Yet, potential buyers should ask themselves several key questions before making this important decision.

1. What will monthly costs be, and can I afford the payments?
   Keeping mortgage payments under 30 percent of your monthly income is a good rule of thumb. If you can’t keep mortgage payments below that, you may be better off renting for awhile.
2. What other debt do I have?
   Total rent or mortgage payments plus credit obligations should not exceed 35 to 40 percent of monthly income.
3. What is my credit score? Can I qualify for a good interest rate?
   A high credit score indicates strong creditworthiness, and that qualifies you for better interest rates on a mortgage. Maxing out on your credit lines and paying bills late will lower your credit score. The impact of a credit score on interest rates can be significant. For instance, a borrower with a score of 760 could pay nearly two percentage points less in interest on a mortgage than someone with a score of 620. Lower interest rates mean lower monthly payments. If your credit score is low, you may want to delay buying a home until you can improve your score.
4. How much will taxes, monthly maintenance, or other fees cost?
   Owning a home means you’ll have to pay real estate taxes and other costs like insurance and maintenance. On the other hand, owning a home brings big tax savings at the end of the year. As a renter, the owner pays those costs for you.
5. How many years will I stay here?
   Generally, the longer you plan to live someplace, the more it makes sense to buy. You’ll build equity in your house and its value will likely increase over the years.

If you’re still unsure, the Amercian Bankers Association (ABA) has a “buy or rent” calculator you can use to compare the cost of renting versus buying a home.

This entry was posted on Thursday, June 4th, 2009 at 10:57 am and is filed under Random Thoughts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.