Stellar Bank will be closed on Wednesday, June 19 in observance of Juneteenth.

Home Loans Article

Considering Homeownership?

A couple being handed the keys to their new home

More than 70% of Americans consider homeownership a central part of the American dream. However, this dream can be one of the most expensive decisions you’ll ever make. So, if homeownership is on your radar as you start to financially plan for this year, whether it be in the near future or far down the road, it is important to consider the related costs and factors to ensure you’re fully prepared for all that homeownership entails.

What does homeownership cost?

For new home buyers, this tends to be the first and most important question asked. While there is no one-size-fits-all formula, in general, you can expect the following upfront costs:

While that is the amount you can expect in the beginning to start the homebuying process, there are ongoing costs that will also need to be considered to determine your financial readiness for homebuying. These costs may include:

What is a mortgage?

  1. Principal - This refers to the lump sum of money you borrowed to buy your home.
  2. Interest - This refers to the money charged by the lender to you, the borrower, for taking out a mortgage. Interest is expressed as a percentage rate and is calculated by the lender using factors such as your credit score, the location and price of your home, the type and terms of the loan, and current market value.
  3. Taxes - This refers to fees required by the government, such as property taxes which help fund things like schools, road construction, and other services in your community. Your property tax bill may change from year to year.
  4. Insurance - This includes homeowner’s insurance and Private Mortgage Insurance (PMI). You generally pay PMI until you have 20% equity in the home. PMI protects the lender if you stop making payments on your mortgage.

How can I prepare to buy a home in the future?

Two of the biggest obstacles buyers face when trying to purchase a home are low credit scores and paying off current debts. Your credit score and the information in your credit report are key factors that determine whether or not you’ll be approved for a mortgage and at what interest rate. If you haven’t checked your credit score recently, you can check it for free here.

Now that you’ve checked your credit score, it’s time to work on improving it. To do so, be sure to pay all your bills on time and to make at least the minimum payments on your debts. However, it is important to note that the more you can allocate towards debt payments, the quicker you can improve your credit score, so understanding your homebuying timeline and budgeting payments accordingly is key.

Learn more about your credit, as well as steps you can take to build strong credit: Check out the “Credit Scores & Reports” module in our Education Center.

How much debt is too much debt?

Before deciding to buy a home, you want to know your current DTI or debt-to-income ratio. This percentage can be calculated by dividing your monthly debt payments by your gross income (pre-tax monthly income). This figure is the number lenders use to determine your ability to afford your debt payments. Calculate your DTI ratio here.

How much do I need for a “future homeowner” cash cushion?

Being able to afford the asking price of a home is just the beginning. When you’re ready to purchase, you’ll need a big cash cushion for the down payment, cleaning costs, as well as an emergency fund to make sure you’re prepared for any unexpected home repairs. In addition, if you plan to pay property taxes separately from your mortgage, you will also need to ensure you have enough cash to cover one to two lump-sum tax payments per year. Want to learn how different home prices affect the upfront costs? Access a variety of Home Loan Calculators in our Education Center here.

How do interest rates impact my mortgage?

Even a difference as small as half of a percent can dramatically affect what you owe on a 30-year, fixed-rate mortgage. Because interest rate fluctuations have such a large impact (positively or negatively) on what you pay over the life of the loan, it is important to be prepared. Take a look at how interest rate fluctuations can affect your mortgage here.

How will buying a home change my monthly expenses?

Buying a home may change some of your monthly expenses. While they may not all apply to you and your specific situation, consider the potential changes:

No matter what stage of the homebuyers process you’re in, buying a home is a huge decision, and it helps to work with an expert. To discuss your borrowing or financial planning needs, get in touch with a Stellar Banker today.

Interested in learning more about homeownership and mortgages? Consult the “Owning a Home” module in our Financial Education Center.

Related Content

Online Banking, Services Article

Stellar Resources for Financial Literacy

Calculating Financials

Personal Banking, Business Banking Article

Stellar Bank to Provide Enhanced Online Security with a Verified .BANK Website Domain

A person logging into a website with a .BANK domain for enhanced security

Industry Insights, Security/Fraud Protection

Business Banking Article

Why an annual financial check-up is crucial to business success

A Stellar accountant assisting a woman with her financial check-up

Industry Insights,Financial Planning

Alternative logo

You Are Now Leaving Stellar Bank

Stellar Bank's website terms, privacy and security policies don't apply to this site you're about to visit. Please review it's website terms, privacy and security policies to see how they apply to you. Stellar Bank isn't responsible for (and doesn't provide) any products, services or content at this third-party site, except for products and services that explicitly carry the Stellar Bank name.

Please click Continue to proceed or Cancel to return.