This is the third part of my “Is it the right time to buy a home?” series where I am posing four questions for first-time home buyers.  Today we are examining the question, are you financially prepared to be a homeowner?  To see the full series visit my personal website, www.jalone.com, or click here.

A few short years ago it seemed that as long as you were breathing you could get a loan and often for the full purchase price amount.  Today that has changed and lenders are back to the basics of analyzing your income, requiring a down payment and evaluating your credit score.

Most conventional loans are looking for a minimum down payment of 10 percent but would prefer to see the borrower come in with 20 percent.  Most conventional loans with less than a 20 percent down payment will require private mortgage insurance will cost you an extra your monthly payment.  Using our example of buying one of my listings in Rocklin for a purchase price of $225,000 a 20 percent down payment would mean having $45,000 in your bank account.  That is a lot of money for many first time home buyers but remember you may be able to use your IRA to help.

Right now because of the high down payment requirements of conventional loans may buyers are looking at the Federal Housing Administration (FHA) for help.  Many lenders offer FHA loans because they are insured and they allow the borrower to qualify for a loan with only a 3 percent down payment.  For our home in Rocklin, this means only having to come up with $6,750 compared to $45,000 for the conventional loan.  Naturally it also means you have to be able to qualify for a larger loan.  If you need help finding a lender to help with an FHA loan contact me at juliej@jalone.com or go to www.hud.com.

When looking at your income the lender wants to see you have been working at the same job or in the same career for reasonable period of time.  So it is amount of income and income stability the lender is most interested in.  In addition the lender will be asking for information on other obligations such as credit card debt, student loans any other debts.  In addition they will look at your current monthly living expenses.  Yahoo has some great mortgage calculators that are worth looking at and can help you determine what is right for you.

In regards to you credit score, I always think it is wise to look at your credit report before you apply for a loan.  This way you will know exactly what is on your record and you can correct any errors you find.  There are lots of sites where you can get your credit score and reports but you may have this service already available to you through your bank or credit union.  There is another site, www.myfico.com, that can show you how doing certain things such as paying all your bills on time for a period of time will change your credit score.  In today’s market you want a credit score in 700’s and preferably above 760 to qualify for a real estate loan.

Remember to be a home owner you must be prepared to take on the added responsibility.  This includes not calling the apartment manager or landlord when the toilet backs up or there is no hot water.  These will by your problems and you will need to do the work yourself or pay for the necessary repairs and maintenance.  The trees may need to be trimmed, leaves raked and lawns mowed.  These things don’t just happen every Friday afternoon, unless you do it or pay someone to.

The payoff for all of this knowing the house is yours and being able to make any changes you want and enjoying the benefits of homeownership.

This was part three of five of my “Is it the right time to buy a home?” series.    Visit my personal website, www.jalone.com or click here if you want to read the entire series where we consider:

Is it the right time to buy a home?

Should you stay where you are?

 Are you financially prepared to be a homeowner?

 How much can you pay for a home?

 Do you know what you want in a home?

Julie Jalone is an experienced Realtor with MagnumOne Realty in Roseville and she and her team work with buyers and sellers of homes in the greater Sacramento area.  To learn more about Julie and her business visit her personal website at jalone.com or check out her daily blog, “Keep it real in Sacramento.”