From the foundation up. Understanding your financial preparedness before buying a home

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From the foundation up. Understanding your financial preparedness before buying a home
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By Jennifer Molden 

The purchase of a home is one of the most important decisions you will make. This process is an investment in your future. Follow these simple steps to be financially prepared and you will be able to determine if you are ready to purchase a home.

Home buying is much like the home building process. A home must have a foundation. In the process of buying a home, your credit score is the foundation that can help you build a home. A strong credit history can affect if you qualify for a loan. Your credit history will also determine the type of loan and the terms that are associated with that loan.

Finding and working with a lender who is right for you is important. Many myths surround your credit score, but the fact is you may only need a score of 620 for a conventional loan. The higher your credit score, the more options avail- able to you.

The next level in your home buying process is understanding your debt-to-income ratio. This is how much debt you have in comparison to how much money you make. A percentage weighs how much you owe in debt from credit cards, car loans, rent and other expenses. This number is an important one that lenders take into consideration. How you manage your finances will determine if you are a good candidate to take on additional debt with a mortgage.

Your down payment is another piece to building your home. The initial amount paid for your home of choice is generally a percentage of the home’s purchase price. Many potential homeowners are surprised to learn they do not have to have the full 20% for a down payment.

There are loan options that will allow for as little as 3% for a conventional loan. A wide variety of options are available for all, including some for low to mid-level income buyers. The funds for a downpayment on a home can come from out- side sources like family members, employers or nonprofits.

Your down payment is just one of the costs associated with the home buying process. It is important to understand you will have additional costs for closing fees, utilities and moving. There are also un- expected repairs every home- owner endures.

Once you feel you have a handle on your financial preparedness, it is time to engage with a lender who can guide you. The lender will provide you with a prequalification for an estimate of what amount you will be eligible to borrow. Your lender is part of the team of trusted advisors who will guide you through the home-buying process.

A local realtor who is well versed in the market and its current trends is vital to a successful home purchase. This individual can assist you in finding homes that meet your needs in terms of location, features, size and functionality while keeping in mind your financial position.

The home buying process can be complicated. Purchasing a home can be incredibly overwhelming in a competitive market. Today, we are facing a particularly challenging mar- ket with low housing inventory and changing interest rates.

With preparation, education and guidance from a trusted real estate professional and lender, you can be on your way to home ownership and begin to build the home of your dreams.

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