If you are preparing to buy a home, finances are definitely one of the key components to applying for a home loan, maintaining a mortgage and feeling comfortable with your housing affordability. I want all of my clients to feel comfortable when they purchase a home and not be overstressed or over budget when it comes to making a monthly mortgage payment. Here is a great Homebuyers Money Checklist for potential homebuyers when you’re planning and preparing to buy a home.
#1. Make sure you have a steady income.
Before applying for a home loan you want to make sure that you have a steady source of income each month. If you’ve just recently changed jobs or industries, lenders like to see at least two years of consistent income so I have an idea of how much you’re making each month and can convert that into how much of a mortgage payment you can afford.
#2. Understand your debt to income ratio.
This means that your understanding how much gross monthly income you’re getting versus the total debt going out each month. This is not on basic monthly expenses such as your cell phone bill or your electricity bill. This is debt; loans that you actually taken out including credit cards, student loans, home loans, equity loans or car payments. If you have too much debt versus the amount of money coming in, lenders see this as a large risk.
#3. Pay attention to credit card payments.
Credit card data plays a large role in the mortgage approval process. You want to double check your loan balance and make sure you’ve made your payments on time.
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#4. Know your credit history.
Get a copy of your credit score and history for free from one of the three major sources; Experian, Trans Union and Equifax. Double check that there are no errors or mistakes and if anything has not been paid, make sure it is corrected before applying for a home loan.
#5. Calculate your down payment.
As a general rule of thumb, it’s important to have at least 5% of the purchase price saved up before applying for a home loan. Many programs allow for 3.5% down payment such as FHA and conventional loans have as much is 20% down payment. Each situation is unique so calculate your down payment and how much you can actually afford. The higher the down payment to the lower the interest rate.
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#6. Get preapproved.
Once you have filled out all the application requirements and collective pay stubs, tax returns and bank statements, you will enter into the preapproval process. Your lender will give you a letter stating exactly how much mortgage you can afford so that you know what price range to search for homes.
#7. Collect proof of assets and income.
In order to get pre-approved you’ll need to collect all required documents that prove your income and your assets. Do you have cars? Stocks and bonds? Mutual funds or CDs? Retirement accounts or other real property? All of this count as assets toward your net worth and can affect your ability to get a loan and/or your interest rate.
#8. Down payment assistance.
Many states and counties offer down payment assistance programs for low-income or distressed borrowers. If you believe you might qualify for this contact my office today and let’s get started. I’d love to help you on the Road to homeownership by making smart financial decisions today.