Welcome to the first part of Amjambo’s series on homeownership. Future topics will include finding a realtor, deciding where to look, inspection, the bidding process, and closing on a home. If you have questions about renting vs. buying – or anything related to the finances of home ownership – drop us a line at: [email protected]. Our financial experts will do their best to respond.
The Musuamba family’s path to home ownership began in 2017, when Bright Musuamba, currently Program Manager at ProsperityME, took financial education classes along with her mother and her brother at ProsperityME. In class they learned all about the U.S. financial system, including how to budget and build a credit score. And in 2021, the family purchased their first home.
For some, achieving the American dream means owning a home. But how much does that cost, and what makes it possible? In this edition, we will look at what’s necessary to buy a house and how it can be achievable.
One important consideration when buying a house is how much housing expenses you currently pay. The total monthly rent for an apartment could be used as a large part of a mortgage payment on a house. Usually a mortgage is necessary to purchase or maintain a home, land, or other real estate. While renting has many positives, owning a home and paying a mortgage helps build equity and wealth.
Your income will impact the type of home you can afford to purchase. Generally speaking, lenders consider your income to determine how much money they will lend for a mortgage. The income could come from a variety of sources – employment wages, self-employment, retirement, or Social Security, to name a few. A way to assess the amount you can afford is to talk to a mortgage lender. You can contact a mortgage lender, even before you know which home you would like to buy. Getting preapproved will help you know what your monthly payment is likely to be, how much of a house you can afford, and if you qualify for a mortgage loan in general.
Your credit score is integral to determining the interest rates and potential fees associated with any loan you can obtain for purchasing a home. A credit score is based on a variety of factors, including payment history, age of credit, and credit usage. A high credit score can contribute to getting the best possible rate on a mortgage, which saves money over time and also allows for a lower monthly payment. An immigrant new to the country might not have a U.S. credit score yet because they have not yet established a lending history. In the case of mortgages, Maine has a program that helps people through the application process. To learn more about this program, see https://www.amjamboafrica.com/?????
Someone with a low credit rating can take steps toward improving it before applying for a mortgage loan. To learn more about building good credit, see www.amjamboafrica.com/building-credit
In addition to an adequate income and a good credit score, the down payment is another important factor in affording a home. The down payment is an amount of money you are able to pay upfront toward purchasing the property. The more money you can put down, the smaller the amount you need to borrow, which will lower the monthly payments. More money contributed toward the purchase could also help you avoid certain fees that may be assessed on special loan programs that allow smaller down payments. However, talking to a mortgage lender about the many different mortgage loan options is always a great idea. Sometimes the fees are minimal and purchasing the home sooner rather than later is worthwhile.
A homeowner is responsible for all recurring and nonrecurring expenses of a house. Some of these are similar to renting – such as electricity and heat – but others may be a new responsibility – if the furnace needs to be replaced, for example. Having enough money saved for these costs is a good idea, as many of them can happen unexpectedly.
Buying a home is an investment that can yield long-term wealth and security, especially for those who are already paying rent. Owning property rather than renting offers financial advantages, too. Money used on rental payments could be put toward mortgage payments instead – helping to build equity in the process.