Buying a home is one of the greatest investments you will ever make. The best — and least stressful — way to purchase a home is to be well educated throughout the process.
Before you even start looking for a house to buy, you need to review your financial situation. This will let you know how much of a down payment you can afford and how large a monthly mortgage payment you can handle.
Lenders will look at the ratio of how much you make to how much you owe. Most will require that your monthly housing costs remain under a certain percentage of your total monthly income and that your total debt (forecasted mortgage payment and recurring debts) is less than 40% of your monthly income.
The second aspect is your credit score. Lenders will rely heavily on your credit score when deciding whether or not to lend to you. It will also help decide how much interest you will pay. Your credit score is determined by the information in your credit file. If something is incorrect, your score will be affected. I would suggest you review your credit report prior to meeting with a lender, so there are no surprises to you or the lender. Your score is made up of your payment history, your outstanding debts and how often you apply for credit.
In today’s real estate market, sellers like to work with buyers who are pre-approved for a mortgage. Pre-approval means that you have submitted a complete loan application and that the lender has verified your information, checked your credit and determined how much mortgage you can borrow. When you are preapproved, the lender is saying that you can borrow a certain dollar amount subject to finding a home and the appraisal.
With pre-approval (not a pre-qualification), the seller knows you have financial backing and you know exactly how much you can spend. This keeps you from a lot of stress of worrying if you will be approved for a mortgage for your dream home. You already know what you can afford.
Take the time to prepare to buy a home before you even start looking, it will save you a lot of stress and make the process much easier.
