The process of purchasing a home or property can be daunting and a lot of people avoid it because of the stories they hear. Here are six steps you can take to ensure you are prepared to purchase a home in this economy.
Step 1: Work on improving your credit score.
Oftentimes we do not think about our credit score until we absolutely need to. This mindset can be detrimental to our livelihood as adults. Poor credit scores can result in higher interest payments, loan denials, apartment denials and even work related denials. YES! Some employers go as far as checking your credit score during the hiring process. They will disclose that to you during your interviewing process, so please be aware of your credit score. This number includes debt, payment history and lines of open credit. In order to be comfortable, it is recommended to have a credit score of at least 650. However, 580-620 is the minimum requirement.
Step 2: Calculate your Debt-To-Income (DTI) Ratio.
You want to have awareness of how much income is produced compared to how much of that income is being paid out. A DTI ratio of 43% is a decent ratio to have when looking to purchase a home. However, the less your DTI ratio is, the better.
Step 3: Determine What Debts Can Be Paid Down.
You will need to be prepared for the upfront costs such as down payment and closing costs, as well as the maintenance and everyday cost of your home. It is important to pay down as much of your debts as you can prior to purchasing your home, so you can have an emergency fund.
Step 4: Budget for Upfront Costs.
As previously stated, upfront costs should be expected during the home buying process. Being aware of these costs and budgeting for them will help the home buying process go smooth. Upfront costs can include: earnest money deposit, down payment, closing costs, home insurance and home inspection. Having an emergency fund to help with these costs would alleviate the pressure and cover the funds that may come with upfront costs.
Step 5: Calculate How Much House You Can Afford.
It is a good idea to budget your monthly expenses and know how much you can afford. It is highly recommended to not exceed that number when looking at loan offers, to ensure you can comfortably pay your mortgage on time.
Step 6: Get Preapproved For A Mortgage.
Mortgage preapproval is provided by your lender. This may be a bank of your choice or third party lender. This preapproval is a good place to start to ballpark on what homes you can purchase and how much the lender is willing to provide to you. Note: Preapprovals do change and they are only set for a specific timeframe, so if you are serious, be sure to stay within your lenders timeframe when purchasing a home. Remember: Preapprovals are not set in stone, but it is a good start for most home buyers.
To learn more about this process, follow the link below. This is the source to the information provided above.
https://www.rockethomes.com/blog/home-buying/how-to-prepare-to-buy-a-house