Home Buying Tips
Home ownership is a big step towards achieving the American Dream. For most dreamers, the most important goal is to acquire a home. This in-turn is their primary influence and motivation for how they conduct their business, financial, and personal lives.
Most people will reach this milestone by securing a home mortgage loan from a lending institution. The purpose of this article is to help guide you on how to prepare and submit a successful home mortgage application.
What Home Is Right For You
Before a prospective homeowner can begin the quest towards purchasing a home, there are some basic factors and assumptions to consider which will influence your decision.
- How big is your family?
- What neighborhoods are you willing to consider?
- Are schools a factor?
- Is a single-family home a requirement or is a condo an option?
- Based on your income and assets, what kind of home can you afford?
For some, living in a specific neighborhood takes precedence above all else, whereas for others, the home itself is more important. In a perfect world, you’d find the ideal home, in your neighborhood of choice, at a price you can afford, but realistically, most people will have to make some compromises.
Make a list of the features you would like to have in your dream home – the number of bedrooms, a fenced yard, granite counter-tops, a garage, etc. then rank them in terms of priorities. Decide whether the house or the neighborhood matters more to you, or whether you’re willing to make a longer commute in order to own a home with a larger lot.
How Much Is My Down-Payment
Nearly all mortgage loans and lenders will require a down payment. The amount you set aside for this will determine the kind of mortgage you qualify for. It will also impact how much you can afford to borrow for a home.
Consider Down Payment Assistance
If working with a Real Estate Agent, be sure to ask about the various home buyer assistance programs available, you could be eligible for one if you qualify. Your Agent should be able to direct you to the proper resource
What’s My Purchasing Power
Consider Your Income
Many banks will require that your monthly costs can’t exceed a percentage of your income. This is known as debt-to-income ratio(DTI).
That means if you earn $50,000 per year, your total monthly housing costs should not exceed $1166 (28% of your monthly income). But it’s more than just your income that the bank will look at…
Consider Your Debts
With your total monthly income…individually or combined, the total monthly recurring debts plus your new home mortgage loan payment should not be more than the 41% threshold.
Consider The Down Payment
Most lenders prefer a down payment of 20% or higher to qualify for a conventional loan, but there are loan options where you can put down less.
However, you should be aware that with a smaller down payment, you’ll likely be required to pay for mortgage insurance, and your loan application will be subject to greater scrutiny.
By now you should have a good idea about the kind of home you’re shopping for and the neighborhood you’re shopping in. You should also have some savings set-aside for a down payment, which in turn will determine the type of loan you should pursue. The next step now is to get a pre-qualification letter from a home mortgage lender
This is the benefit of choosing a Real Estate Agent who can refer you to a couple of trusted Financial Institutions so that they can do the necessary ground-work to provide you with a pre-approval letter after they verify your income, assets and credit which can give you the same strength of a cash buyer.
In today’s competitive housing market, it is not uncommon for a seller to receive multiple offers on their home. Having a pre-qualification letter in hand could be the difference in your ability to purchase the house you desire. It proves to the seller that you are serious and provides you with bargaining power which could give you an advantage over other buyers.