Making the decision to buy a new home goes far beyond knowing the monthly payment you can handle. Mortgage loan qualification depends on factors that include cash reserves, down payment, annual income, full-time job stability, and credit rating.
Financial considerations are vital. For many people, a new home represents the largest purchase they’ll ever make.
When the time is right to look for a new home, it’s important to assess your current financial commitments and prioritize your home-buying needs.
Basic Financial Rules of Home Buying
Most people have mortgages, and certain legal guidelines govern home loans. Unless you plan to pay cash for a home, it pays — literally — to become familiar with those legal guidelines and financial limitations. With that being said, it helps to know the following fresh terminology:
Down Payment: Different types of home loans require different amounts of money upfront. Requirements differ based on the type of loan, specific lender, and the loan borrower’s choice of options. For example, zero-down federal loans are available for military veterans and through other specialty home loan programs.
Maximum Loan Amount: This is the total loan amount the homebuyer is authorized to borrow. Prospective homebuyers qualify for a home loan based on verifiable annual income, banking and tax records, and debt and credit information. Lenders typically consider all sources of funds, but limitations may occur on certain types of income that cannot easily be verified (e.g., part-time, seasonal, and freelance work).
Loan-to-Value Ratio: The relationship that exists between the appraised value of the property and the amount of the loan represents your loan-to-value ratio. That relationship can affect the interest rate or the specific terms of the home loan package.
APR and ARM: Annual percentage rate (APR) is the interest that you pay on a home loan. Fixed-rate mortgages charge a specific rate on the unpaid loan balance, typically with a monthly payment that remains constant for the entire life of the loan.
Charges on adjustable-rate mortgages (ARM) fluctuate based on a specific financial formula, and the monthly payment is adjusted periodically.
Debt Ratio: Long- and short-term debt balances (including credit card and student loan debt, as well as car loans and other sums that must be repaid) are added and expressed as a percentage of total assets. A low percentage is desirable for buying a new home.
Credit Worthiness: Your FICO score should be in the higher “good to excellent” range to assure home loan approval. Past credit history is also important, as bankruptcies, charge-offs, late payments, and excessive debt on a credit report negatively affect the credit score and raise red flags.
Remember that credit history extends back in time for more than a decade, and any inconsistencies will require an explanation to the mortgage lender.
As you prepare to buy a new home, research more useful terms about financial necessities and home loans.
Personal Decisions About Budget
The term “affordable” has different meanings for different homebuyers. Some prospective homeowners seek pre-approval for a mortgage with the intent of buying “the most house possible.”
Others choose to keep their new home’s value well below their authorized loan limit. Other homebuyers look for a budget home purchase with the intent of building up cash reserves to make home improvements over time.
Luckily, there are as many possible scenarios as there are interested buyers. There are also a wide variety of home loans available that tailor to your financial situation. Determining the loan amount you qualify for is a good prelude for working with a builder to design the home of your dreams.
Because new construction homes are customizable in many ways, having a budget amount in mind from the start of the process is helpful.
If you’re just beginning a home search, keep in mind the basic differences between buying a new home and looking for quality, value, and future potential in an existing property. New construction homes at Gambrill View have the latest innovations to make life easier. They’re built to higher standards of energy efficiency and sustainability and come with a builder warranty. Our new construction homes are also stylish by modern standards and include fresh floor plans that are tailored to you. And these homes are located in an attractive community near the stunning Catoctin Mountains and Gambrill State Park — voted Best Park in Frederick Magazine’s 2019 Best of Frederick competition.
As you weigh the pros and cons of possible new construction homes and neighborhoods, remember that the best communities are built according to a plan that takes both human and environmental needs seriously.
Gambrill View is such a community, planned by one of the most highly respected developers and builders in Northern Virginia. For nearly 40 years, Rocky Gorge Development has been the developer and builder of innovative neighborhoods in beautiful locations.
We’d love to welcome you home!