Home Purchase Tips
Most first time home buyers are naturally excited at the thought of beginning the home buying process. While this is no doubt the most exciting part of the home purchase experience, in reality, there are several steps that should be taken before you ever even pick up that real estate magazine in order to make sure things go off without a hitch with your home purchase.
What to Do First
The first step you should take is to determine a budget. Each year many people set out to make a home purchase only to discover they cannot afford nearly as much house as they originally thought they could. You can avoid such an unpleasant surprise by sitting down and considering everything that must be included in the home purchase. Above and beyond the monthly mortgage payment you will also need to come up with a down payment and other closing costs such as title insurance, inspection, appraisal, survey and fees associated with the origination of your mortgage loan. This is usually several thousand dollars.
All of this will help you to zero in on exactly how much house can fall within your price range. It’s also important to keep in mind that most lenders prefer for the total amount of your housing expenses to fall within a specific range of your income as well as your total monthly debts. This range varies from one lender to the next; however, the general maximum is debt to income ratio allowed by most lenders is about 38% while lenders prefer for housing costs not to exceed 33% of your monthly income. This means if you make $3,000 per month, your housing costs (including property taxes, insurance and PMI) should not exceed $990 per month. Combining housing and all other debts, your total monthly debt obligation should not exceed $1140. Keep in mind some lender requirements are even more strict.
When determining how much you can actually pay per month for a mortgage you also must consider other factors such as:
- Property taxes
- Private mortgage insurance (if more than 80% of the purchase price is financed)
- Maintenance fees
- Homeowner association fees
Qualifying for a Home Mortgage
Remember, the lower your debt to income ratio the better. You can get started raising the amount of house you can buy by paying down your debt before applying for a mortgage loan.
- Cut back on discretionary spending
- May more than the minimum balance on your credit cards
- Review your credit report for errors
Making a larger down payment on your home can also lower your ratio.
After you know how much you can afford, it’s time to obtain a pre-approval. Once upon a time buyers rarely took the time to obtain a home purchase pre-approval; however, today they are learning it has numerous benefits. Not only will you know without a doubt how much you can spend when you do go shopping, but in the event that you find yourself bidding against another buyer over a particular house, sellers will give more weight to your offer if it has a pre-qualification letter from the bank attached to it.
Ready to purchase your next home? MortgageLenders.org can help you locate information on loans as well as find a mortgage lender.