Whether you reside in a seller’s or a buyer’s market, your heart might get set on buying a house. Something that feels like home is not often discovered easily. Yet, once we find it, we don’t want to let go of it. We desire to purchase it as soon as possible. Yet, it is not as simple as it sounds. There are numerous financial issues which shall be determining factors when it comes to purchasing a house. Also, there are certain terms of the mortgage that you may need to fulfill. Hence, knowing this information in advance can help you prepare. This helps when you actually find a good place you wish to buy. In this case, you won’t have to go through too much hassle because of better preparedness. Also, it will help you make better decisions. Your mortgage process will also be made easier, smoother and faster.
1. Have sufficient down payment
The dream of owning that house might quickly go down the drain if you’re unable to secure the required amount of down payment. You must have an adequate amount on hand for the same. Since the economic crisis in the year 2008, the lenders insist on stricter requirements. Due to the same, prospective borrowers who are looking for buying a house, in order to qualify, must have some ‘skin in the game’. A minimum of 3.5% down payment is required by most loans.
2. Find an affordable Rate of Interest
You must be able to afford the EMIs and the interest rate.
3. Ensure you have a minimum acceptable Credit Score
If you pay your bills late, max out your credit cards or have any other financial problems, the same shall be reflected in your FICO score. It can potentially block the required mortgage for your dream home. FICO scores are an indication for the bank whether you are able to pay your monthly bills on time and whether they will seamlessly get back the lent money. A low credit score can hence, hurt your chances of getting sufficient financing for your house.
4. Ensure that your Debt-to-Income Ratio is less than or equal to 43%
It is essential that you be realistic about what is affordable for you. You may end up with your foot in your mouth. You will probably be surviving on ramen noodles in a house that you shall eventually lose. Banks use the debt-to-income ratio to determine whether or not you can afford what you’re purchasing.
5. Ensure that you have the ability to pay closing costs
Along with a home mortgage, there are also numerous fees that you may have to take care of. If you do not plan this well in advance, you may end up getting a rude awakening when they knock. Although the closing costs vary between states and lenders, they usually amount up to 1% of the total amount of the loan.