Preparing to Buy
Let’s Discuss Finances
Owning your own home is about more than being able to decorate any way you like; it’s about being prepared to maintain your home over the years, realizing that part of your income and time will go toward repairs and maintenance. It’s about being willing to take the risks of home ownership with a realistic expectation of the rewards. Unless you plan to purchase with cash. You’ll need a home mortgage and it’s best to review your credit reports early in the process in order to find and correct errors which can potentially raise your credit score and reduce the costs of borrowing.
Getting your financing plan together is the most important step in the home buying process and goes hand-in-hand with DECIDING TO BUY as previously stated. If you do not have the funds available to complete your purchase – the cash and loan if a loan is being used – then it’s futile to make a plan, preview homes, etc. If you intend to finance the purchase with a mortgage, your first step is to speak with a reputable loan officer who can discuss your goals and your particular financial details, and make sure you’re in a position to complete the home purchase you have in mind.
How Much Can You Afford?
It can be discouraging to find that your salary won’t stretch as far as the home you want to own. However, sacrificing a huge part of your income just to pay the mortgage can quickly make home ownership a burden rather than a point of pride. It’s better to buy a modest home now and look at purchasing that “dream home” in a few years.
Don’t forget the day-to-day expenses you may incur once you own that home. In addition to ongoing upkeep and repairs (because things age and break) are utilities, home-owner or condo association dues, property taxes and city and/or county taxes.
What is Your Debt-To-Income Ratio?
This is something that lenders take seriously. Your overall debt should not be more than 40% of your income, and your housing debt should not be more than 32%. What 32% of your income will buy depends on where you want to live.
Sellers are more receptive to potential buyers who’ve been pre-approved. You want to avoid being disappointed when pursuing homes that are out of your price range. With Pre-Approval, the buyer actually applies for a mortgage and receives a commitment in writing from a lender. As long as the home you’re interested in is at or under the amount you are pre-qualified for, a seller will know that you are a serious buyer for their property. Costs for pre-approval are generally nominal and lenders will usually permit you to pay them when you close your loan.
During the loan application process, the loan officer will examine your financial and income records, obtain your credit report and at the end of the process, you will be provided with a “Pre-approval Letter” stating the amount of the purchase price that you are approved for. Once this process is concluded, you’ll be prepared to step out with confidence into the market and ready to make an offer. If you’re an investor, a business owner, a veteran, or first-time buyer, we can put you in touch with the right professional to help you get the advice you need. We can also recommend professional lenders whom our clients have successfully teamed up with over the years.
What About Your Down payment?
Most conventional loans require a 20% down payment (your cash contribution to the purchase), with the 80% balance of the purchase price coming from your loan (mortgage) funds. Some loan programs will require you to carry Private Mortgage Insurance if you put less than 20% down. Again, you want to speak with a loan professional to find out about available loan programs that meet your needs and situation. It goes without saying that you should shop for your loan, not only for the interest rate, but to discuss costs and fees, available programs, time-to-close, and customer service.
The lender you choose will help guide you through the loan application process. Assemble and organize your financial documents such as tax returns, bank statements, investment account statements, old mortgage statements, rent receipts (if you are currently renting), pay stubs, etc. so that your loan application can be approved without delay. The loan application process may seem overwhelming, but rest assured that the more organized you are, the easier this process will be.