What Should You Know Before Buying A Home?
To become a homeowner, you have to make one of the most important purchase decisions of your life. While the process can be overwhelming, homebuying is also an exciting time. It’s better to wait until the time is right, so you can get all the amenities you’ve dreamed about. To be prepared for the future, what should you know before buying a home?
How Much Can You Afford?
This is the very first question you should ask yourself before house hunting, so you can be realistic about what’s affordable. Determine your ideal price range and must-have amenities, so you can narrow down the search and find the perfect home for your needs.
To find the right price range, look at your monthly gross income and debt payments. Do you have enough money left for an additional expense and a bank deposit? If a mortgage payment keeps you from building your nest egg, it’s too expensive for your budget.
What’s Your Credit Score?
This three-digit number is critical in the mortgage loan process. Essentially, credit score is a person’s ability to repay a debt based on past payment history. If your credit score is below 600, a lender may view you as too much of a risk. The general rule of thumb for mortgage loan approval is a 620. If your score is lower than 620, work on raising it before submitting a mortgage application.
What’s Your Debt-To-Income Ratio?
Debt-to-income ratio (DTI) divides your mortgage payment and existing monthly debts by your gross monthly income. This percentage tells potential buyers how much of their monthly income goes to payments. Buyers who pay more than 43 percent of their income towards debt are unlikely to be approved for a mortgage loan. DTI is an industry standard that helps prevent people from stretching themselves too thin to own property.
Is Your Job Secure?
When applying for a mortgage, lenders typically like to see two to three years of steady income. If you have been between jobs or recently spent time unemployed, this could hurt your chances of approval. A stable income lessens the risk you will fall behind on payments and increases the likelihood of securing a loan. To avoid a possible loan denial, make sure your career is established before applying for a mortgage.
Can You Cover All Costs?
The expense of buying a home encompasses more than the down payment to secure it. In addition to the monthly mortgage, you must factor in other purchase fees, including:
- Home insurance
- Unforeseen repairs
- Property taxes
- Closing costs (i.e. appraisal fees, title insurance)
Avoid overextending yourself on the down payment or mortgage, otherwise these additional costs could put you further in debt.
Does the Home Need Repairs?
Once you have narrowed down your home search, be sure to ask the right questions to avoid “hidden” costs. Make sure all plumbing and electrical units are inspected, as well as the roof and insulation, so you don’t find yourself stuck with the replacement costs.
Ion Bank is dedicated to helping our customers reach their financial goals. To learn more about the mortgage loan process, contact one of our mortgage originators today!
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