You think you’re ready to buy a home but aren’t sure what a lender will think. How do you know when you’re ready to apply or when you need to do a little ‘cleaning up’?
Check out our guide to get you started.
What’s your Credit History?
You don’t need to know your credit score, but you should know your credit history. Every consumer has free access to each of the three credit bureau reports here. Pull your report at least once a year (they are free weekly until April 2021) and see where you stand.
Do you have late payments? Is your credit overextended (you charged more than 30% of your credit line)? Do you have collections or judgments?
Use this opportunity to clean your credit up. The less negative information on your credit report, the more loan options you have.
How Much Debt is Outstanding?
Lenders look closely at your outstanding debt compared to your gross monthly income (income before taxes). Ideally, your total debts, including your new mortgage, shouldn’t exceed 43% of your monthly income.
Tally up your debts and see where you stand. If you’re too close to 43% and you didn’t even add in the mortgage payment yet, see where you can eliminate debts to free up some of your monthly cash flow.
How Much Money do you Have for a Down Payment?
Your liquid assets help you cover the down payment. Lenders don’t count illiquid assets, such as property, cars, or tangible assets you have at home.
Your liquid assets may be in savings, checking, money market accounts, or even stocks. Any money you have that you can immediately turn into cash counts toward your down payment funds.
Figure out how much you have and how it compares to your intended purchase price. What percentage will you put down?
A 20% down payment isn’t required anymore. You can get by with a down payment as low as 3% (for first-time homebuyers), but the higher your down payment, the more loan program options you have available.
What are your Goals?
Don’t forget about your financial goals. Think about how long you’ll own the home and what you want out of it. Is this a home you’ll retire in and hope to own without a mortgage sooner rather than later?
If so, look at shorter terms, such as the 15-year loan. You’ll make higher payments, but pay thousands of dollars less in interest and own the home much faster.
If this is a short-term home and you don’t intend to own it without a mortgage, a 30-year program may be just what you need.
Every homebuyer has different needs, but there’s a loan program for everyone, no matter your qualifying factors. Let me help you find the perfect program for your home buying needs. Whether you’re buying your first home or a subsequent home, I have the perfect program for you to buy the home of your dreams.
