Before Buying a Home
Determine How Much You Can Borrow: The loan amount for which you qualify is the maximum amount the lender feels you can afford based on your income, not necessarily the amount you want to pay. The total mortgage payment plus any HOA fees divided by your gross income is the front ratio and is traditionally required to be below 28%. The total mortgage payment and any HOA fees plus any fixed monthly payments divided by your gross income is the back ratio and is normally required to be below 36%.
Credit Report: Check your credit report to know your credit worthiness. A good credit rating will result in a lower interest rate.
Pay Off Small Debts: Having 3 small credit card balances will only cloud the picture. Try to pay them off.
Count the Cost: Spend some time analyzing the additional costs associated with a home purchase. Remember there will be items such as draperies, furniture, accessories and landscaping that you may want or need for your new home.
Gather Documentation: Your buying process will be smoother if you begin gathering information before putting a home under contract. Examples: W-2s, income tax returns from the last few years, copies of pay stubs, records of any child support or alimony, bank statements for all accounts for the last several months and any additional income.
Closing Costs: In addition to your down payment, you will need funds to cover your closing costs. Depending on the type of loan and your location, these costs can range from 2% to 5% of the loan amount. They cannot be borrowed and must be paid in cash at closing. Sellers will often contribute funds toward the payment of buyers’ closing costs.
Wish List: List all the items you want in your new home and prioritize them based on wants and needs. Mark those items on which you are willing to compromise.
Selecting a Realtor: Finding a real estate professional to assist you in locating properties will save you time and leg work. Your Realtor will be able to guide you in determining a fair price for the property in which you are interested.
Selecting a Lender: There are many mortgage companies from which to choose. Several have information available online, including pre-qualification forms. Your Realtor should be able to recommend a reputable company based on previous experience. Family and friends are also good sources for lender recommendations.