Posted on: 13 February 2017
The decision to buy a home is an exciting time in your life, but it is also a time for you to consider some important issues regarding your income and credit. Here are two tips to help you prepare for the home-buying process so you can begin searching for your new home.
Look at Your Credit
Before you begin to shop for a home, it is a good idea to look at what is showing on your credit report. You can get a free copy of your credit report once a year from each of the three credit bureaus by visiting them online on each of their websites. This will help you to see if there are any errors on your report, such as incorrect debt reportings or other items that shouldn't be on your credit.
Incorrect items on your report can adversely affect your chances and ability to get a home mortgage and should be corrected before you apply for a home loan. You can have them corrected by filing an online dispute with the credit bureau that is reporting any incorrect information so they can get it corrected.
Also look at your debt-to-income ratio on your report to make sure you don't have too many debt obligations to allow you to be approved for a home loan. A mortgage lender is going to calculate your debt-to-income ratio and make sure you currently do not have too much debt to handle a mortgage payment. Lenders will also calculate your estimated mortgage payment and make sure it is not more than 28 percent of your income before taxes.
As you look at your credit, including debts, decide if it would be beneficial for you to pay off some excess debt before you apply for a home mortgage. Calculate your back-end debt-to-income by adding up all your monthly debt payments and divide it by your monthly income before taxes. If it is too high, look at and consider items you can pay off before you begin the home buying process.
Calculate Your Budget
After you have considered your credit and your debts and handled any necessary changes, you can decide how much house you can afford to buy. Consider if you have any money you will be able to put down as a down payment or if you will be financing all the purchase.
Talk to a mortgage broker about your options for different home-buying mortgage programs and their requirements to qualify for each. These qualifications can include being a first-time home buyer or having a certain percentage of a down payment. There are also mortgage loans available which you can qualify for that will finance the entire purchase.
Next, consider how much of a monthly payment you can handle, as this affects the amount of the mortgage you can afford. Lenders recommend that your mortgage payment, including principal, interest, real estate taxes, and homeowner's insurance should not be more than 28 percent of your income before taxes. For example, if your monthly income before taxes is $7,000, then 28 percent of this is $1,960, which is the recommended maximum your full mortgage payment should be.
Your lender can give you an estimate of how much your mortgage loan would be with the projected payment amount you can afford. Then, you can use the mortgage amount as a maximum purchase price guideline as you begin to shop for your future home.
You can now contact a real estate agent in your area to help you in your home search, get pre-qualified for a mortgage, and choose an area to begin looking for your future home.Share