Buying a house is perhaps one of the best investments you can make, but it does take some preparation. A good credit score and an appropriate down payment make the process easier and more affordable. It is important to plan accordingly for your big purchase by improving your credit score and saving for a down payment.
Buying a house on a teacher’s salary is totally possible with budgeting and planning. It is also important to get pre-approved for a home loan before shopping, so you know how much house you can afford.
Down Payment
Considering how much you can afford to pay as a down payment for the purchase of your home is also important. With down payments, the general rule is always the same: Bigger is better. In other words, the bigger the down payment you can make, the easier it will be on your pocketbook. This is because more down equals lower payments.
If you put down at least 20%, you can avoid paying Private Mortgage Insurance (PMI). If you put down less than 20%, you will be required to pay PMI each month, which generally costs 0.5% to 1% of your entire loan amount. This means that for a $100,000 loan, you could pay as much as $1,000 extra a year, or an additional $83.33 per month.
Also worthy of note is the fact that down payments must come from nonborrowed funds. Since you won’t be able to finance your down payment, be sure you have a savings plan in place. It’s wise to consider an automated savings plan that can be deducted straight from your paycheck and funneled into an interest-bearing savings account.
Credit Score
Next to consider is your credit score. You simply cannot get most home loans without at least a good (or consistently improving) credit score. Banks and credit unions alike use it to measure your personal financial health.
You’ll first need to find out what your credit score is, and decide from there how to raise it, if necessary. Ideally, home loans require scores above 700 to qualify. You can always visit your credit union for a copy of your free credit report, and they can give you tips on how to improve your score.
Although it may seem taxing, it’s good to focus on the highest credit score you can muster. Higher scores equal lower interest payments, and good credit buys more home.
Teacher Mortgage Program
There are some financing programs available to assist teachers specifically in the homeownership process. These programs often take into consideration the special circumstance involved in buying a house on a teacher’s salary and have designed their terms to specifically address these.
For instance, with a Gulf Coast Educators FCU Educator Mortgage, you can finance your new home up to 103%, with no down payment or PMI required.
Homeowner’s Insurance
When calculating how much house you can truly afford, be sure to leave room for homeowner’s insurance. This is an expense that’s included in monthly payments, so it’s important to get the numbers to fit your monthly budget without compromising quality.
It’s added into your monthly payment, so it should also be figured into your overall calculations to determine maximum affordability on a month-to-month basis. This is yet another reason to select lenders with special financing programs available to assist teachers with the purchase of a home.
Buy a House on a Teacher’s Salary
From checking your credit score to saving for a down payment, there are some steps you can take today to ensure that buying a house on a teacher’s salary is not the impossible endeavor it sounds like it could be.
Take some time to assess the kind of payments you can afford, and work from there. Also, be sure to take advantage of any special financing programs available specifically to teachers. In the end, you may be surprised how easy buying a house on a teacher’s salary can be.