BE PREPARED TO BUY
Being prepared to purchase a home can save tons of headaches and heartache down the road. Once you’ve decided to purchase a home, most likely one of the largest investments of your lifetime, it’s time to get things in order. Let’s go over some key factors here:
1) How much house can you afford?
One of the most important factors a buyer needs to know is just how much house can they afford? Just because a lender preapproves you for a certain amount does not mean you need to spend that amount. It’s always dependent on an individual’s lifestyle and where they spend their money. Work on a budget and decide where your money goes. Can some of that money be comfortably reallocated towards a mortgage payment? Be realistic with what you can afford vs what you want. The two do not always go hand in hand. Be sure to budget in life’s unexpected expenses and your current income, not what you hope to make in the future.
2) What will I need?
In order to know for certain how much house you can purchase, you’ll need to find a lender and become pre-approved. Your loan officer, or also called mortgage broker, will look over many documents which give them information about your financial situation, history and payment records. He/She will obtain your credit score from the official agencies and determine how much money they can loan to you and at what interest rate they can offer this loan. Those factors help determine what your mortgage payment would be each month, therefore helping you determine what you can afford. It’s important that you gather the following and have them ready for your chosen lender to evaluate:
- Financial/Bank Account Statements
- Loan documents – auto, boat, student, personal
- Any other financial debt obligations
- Recent pay stubs, W-2’s or proof of income
- Credit card statements
- Tax Returns for at least 2 years
- 401K statements, investments, life insurance, stocks, bonds, or any other assets
- Rental/Mortgage history for the past 2 years
3) What to consider?
As we stated earlier, your credit score plays a vital role in the amount you can qualify to purchase and at what rates. It’s important that you have your credit in good standing with the three major credit agencies – Equifax, Experian, and Trans Union. Different loans have different set minimums when it comes to scores, but anything in the 700-800’s is known to be great credit scores. It is prudent to stay on top of your finances, paying due amounts on time, and to keep as much available credit as possible. Lenders will consider your debt to income ratio – the higher the income, the lower your debt – the better you can qualify for the best rates and purchase price.
