Having your own home gives you the luxury of personal space. If you’re buying a house, there’s a lot of work to be processed first, which mainly involves paperwork and talking to the right people. However, that won’t start in the first place if you don’t have the means to finance the purchase.
Obviously, money is a necessity if you intend to buy a house. If you can afford it on your own, then congratulations! If you lack the funds, there’s nothing wrong with that because housing loans exist for that reason.
How exactly do you financially prepare to buy a house? This article will elaborate on ways that you can do this.
#1 – Keep an Eye on Your Credit Report
The first and foremost thing that you should take into consideration when buying a home is your budget. If you lack the funds, then you’ll most likely have to apply for a loan. This is where your credit score comes in.
Your credit score is the first thing that lenders will look at when assessing your loan application. The interest rate that you’ll get depends on your credit. Different lenders have different requirements, but the consensus is that you must have a credit score of at least 620 to qualify for a loan. If your credit score is lower than that, you can still get a loan, but there will be many other requirements.
Additionally, you should also try to maintain a low balance if you have a credit card. Always make sure to pay your dues on time because late payments can affect your credit score badly.
#2 – Lower Your Debt
Another factor that lenders consider when giving out loans to borrowers is the debt to income ratio (DTI). The DTI ratio is a measurement that compares how much debt you accumulate each month to how much you make. The lower your DTI ratio is, the better.
The ideal DTI ratio in the eyes of lenders is lower than 36 percent. On the other hand, the highest DTI ratio that a borrower can have to be still able to qualify for a loan is 43 percent.
Much like credit scores, the best way to improve your DTI is by paying for your debts on time. You can also consolidate them to cut down on the amounts that you’re paying monthly.
#3 – Try to Get Prequalified
Getting prequalified is a good option if you want a housing loan. The process involves starting a mortgage application with a bank or lending institution. Depending on the borrower’s credit score and report, they can receive a conditional loan for a mortgage.
Think of it as an evaluation by the lender to ensure that you can pay for the loan. Once you get prequalified, you can proceed with creating a complete mortgage application. This also gives the impression that you’re serious with the purchase.
#4 – Have a Down Payment
When you finance a house with a mortgage, you’ll usually need to pay a portion of the property’s sale price in cash upfront. This amount is referred to as the down payment, and it helps with securing your loan.
Most people save up for a down payment. In any case, it’s recommended that you have a plan. The best way to track your progress is to have a separate savings account dedicated specifically for a down payment.
#5 – Consider Your Closing Costs
First-time home buyers typically see a property’s price and think that’s all they have to pay. This is far from the truth because there are other costs aside from the down and monthly payments.
These are all part of your closing costs and are approximately up to 3 to 5 percent of a home’s total purchase price.
#6 – Don’t Quit or Change Your Job When You’re Applying for a Loan
Since you’ll be having monthly payments, you’ll need to have a steady source of income. Lenders favor borrowers that are employed because it’s a sign of financial stability. It’s a clear indicator that they’ll be able to handle the monthly payments.
If a borrower quits or changes their job during the mortgage application process, it can influence the lender’s decision-making. You can still get the loan, but you’re likely to have higher mortgage rates, or you’ll have a delay.
If you want to own a home but lack funds, getting a mortgage is the best course of action. Read through the tips mentioned in this article, and you’ll have a better chance of getting approved faster.
Total Lending Concepts has knowledgeable mortgage lenders in different locations in more than a ten states around the country. Everyone deserves to be one step closer to their dream home, which is why we offer different loan programs that suit your needs. Find a location near you and contact us for a consultation!