Updated: Jul 23, 2021
Ever thought about buying a home? Or just curious to know how that process even works? There is so much misinformation when it comes to homeownership; In this series, we will look into some key steps you should keep in mind when looking for your next home
Step One: Decide If You Are Ready to Buy a Home.
A few pivotal factors to look for are...
1. Income and Employment Status.
Your lender will look at how much money you are making, as well as your work history. (Usually about two years) This is to make sure your source of income is reliable. Lenders want to know that they can trust you with the loan. You wouldn't want a monthly mortgage if your finances are on rocky ground either.
2. Debt-to-Income Ratio (DTI)
This helps your lender see how much of your income goes to debt. DTI is calculated by dividing your monthly debt by your gross monthly income. Your lender will use the debts shown on your credit report to calculate your DTI. You should do a rough estimate of your DTI before applying for a loan. In most situations, you'll need a DTI below 50%.
3. Liquid Assets
Though mortgages help a substantial amount you will still need liquid assets such as a down payment when buying a home. Most buyers need to put money down, but it is possible for a "No Money Down" payment. You will also have to pay closing costs before moving into the home. That is usually 3%-6% of the value of your home.
4. Credit Health
Your credit score, in addition to the factors mentioned above, tells lenders how much of a risk you are. Taking steps to improve your credit score can pay off when buying a home. Your credit score is based on the following information:
-Your payment history
-The amount of money you owe
-The length of your credit history
-Types of credit you’ve used
-Your pursuit of new credit
Most lenders require a score of 620 minimum to qualify for loans. A score above 700 will usually get you the best loan terms.
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It's important to decide if it's a good time to buy a home or not. This depends on personal factors (such as readiness to do so financially and lifestyle preferences) and market conditions (such as mortgage rates and economic health. )
Thank you for tuning in. Keep an eye out for the next step in your home buying process.