Home Planning Guide Step 1: Understand Your Finances

Navigating your finances can be a challenging task, especially when it comes to homeownership. At HPM Building Supply, we understand that this is a significant investment and want to ensure that you are equipped to make confident decisions for your future. That’s why we asked HFS Federal Credit Union to share their expertise and advice to guide you in making the best choices for this investment in your new home.

Determining your budget is essential for us to provide you with the best possible options. If you plan on financing through a lender, we recommend obtaining pre-approval first to streamline the process. It's also worth asking your lender if they require bonding services, as we offer that as well.

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Tips for Figuring out Your Home-Buying Budget

1. Understand the Financial Aspects

Building your new home is an exciting journey, and understanding the financial aspects is a crucial part of the process. Before you start, you'll need to secure a construction loan, which is a short-term loan used to finance the cost of building your home. Some lenders have a construction-to-permanent loan, which will automatically convert to a permanent mortgage loan (check with your lender regarding their different loan programs). Once your home is built, you can then refinance this construction loan into a conventional mortgage.

Now, let's talk about an important concept: the difference between what you qualify for and what you can afford. Just because a lender approves you for a certain amount doesn't necessarily mean you should borrow the full amount. It's essential to consider your lifestyle, future plans, and financial comfort zone when evaluating what your monthly payment will be.

2. Calculate Your Debt-to-Income Ratio

To help you understand your financial standing, you can calculate your Debt-to-Income ratio (DTI). This ratio is a tool that lenders use to assess your ability to manage monthly payments and repay borrowed money. It's calculated by dividing your monthly debt payments by your gross monthly income.

For conventional mortgages, lenders typically prefer a DTI ratio of less than 40%. This means that no more than 40% of your gross monthly income should go towards paying debts, such as credit cards and student loans. If you're considering a Federal Housing Administration (FHA) loan, aim for a DTI ratio of less than 36%.

Remember, these are just guidelines. The lower your DTI, the more manageable your debts will be.

3. Make A List Of Expenses

Before diving into the home-building process, create a list of all the costs associated with homeownership. This includes mortgage payments, property taxes, homeowner association dues, insurance premiums, and other fees that may be included in your loan.

4. Consider The Long-Term Costs

When planning to build or buy a home, it’s crucial to think beyond just the monthly payments. Consider possible future increases in property taxes, insurance premiums, and homeowner association fees to get a comprehensive understanding of your long-term expenses and how much flexibility that leaves you within your current budget. Don’t forget, you’ll also need to save up to cover unexpected future repairs and maintenance.

5. Select A Financing Option That Works For You

Explore the various types of mortgage loans available to find one that aligns with your credit score and financial background. Shopping around and comparing rates will help you make an informed decision about the loan that best fits your budget and long-term goals.