Buying a home is an absolutely huge accomplishment, and you can be assured that it will take some skill to compete in the housing market. When you’re looking for a house in the mid-range, affordable price range it’s essential to be prepared. You need all of your ducks lined up before going out on that first real estate hunt!
If You Are In The Early Stages Of Buying Your Home, These Four Steps Will Help You Prepare.
- Check Your Credit
Pull credit reports from all three of the credit reporting bureaus: Experian, TransUnion and Equifax to understand your score better. Your credit score is what determines whether or not you are eligible for a mortgage, and the higher your score is, the less interest you will be charged on loans!
- Determine Your DTI
Your debt-to-income ratio (DTI) is the percent of your monthly gross income that goes toward debt repayment. Depending on the mortgage program, lenders usually prefer your DTI to be no higher than 43%.
You can determine your DTI by dividing your debt repayment total by your total monthly income.
For example: John pays $860 a month toward his debt. And John makes $2,000 a month gross income. $860 / $2,000 = .43 or 43% DTI
If your DTI is unfavorable, pay off as much debt as you can before you apply for a loan.
- Place A Down Payment
The idea of a down payment is becoming increasingly popular. Many mortgage programs require it these days. Generally, the amount required for a down payment is 3% – 5%, and FHA loans require 3.5%.
When you buy a new home with less than 20% down payment, the bank may require private mortgage insurance (PMI). This will increase your monthly payments. FHA loans also require an upfront mortgage insurance fee in addition to the monthly fee.
It’s important to also be prepared for closing costs, which can total up around 2% or 5%.
Down payment assistance programs offer grants and loans to qualified buyers who need help with their out-of pocket costs.
- Determine Your Budget
Before applying for a loan, use a mortgage affordability calculator to figure out how much house you can afford. When you know what price range your home purchase will fall within, estimate how much money is needed for down payment and closing costs.
The key to a successful mortgage is in understanding your financial situation and how that will affect the process. If you need more information or guidance, we’re here to help. Give us a call today at (888) 671-7885 and speak with one of our specialists about your specific needs!