Before purchasing a new home, the smart home buyer will take several things into consideration. There are decisions to be made in regards to finding a good realtor and/or a reputable home builder; researching local communities and obtaining information on schools, community services, and amenities; and if this is not a first home purchase, decisions on how to market and sell their current home. It is, however, financial preparation that is most important for the smart home buyer.
Evaluating your credit report
Your credit score can determine the type of loan you get or if you get a loan at all. Individuals with low credit scores are not excluded from obtaining a mortgage, but it definitely makes the process more difficult. Before you begin shopping for a home, you should obtain a copy of your credit report and ensure that there are no major blemishes that will stand out to a lender.
You may already know that reduced credit scores are the result of late payment or non-payment of credit accounts, but did you know that lenders also look at your available credit vs. balances owed? The closer your credit balances are to their maximum limits, the lower your overall credit score.
Some individuals make the mistake of consolidating and canceling credit accounts because they erroneously believe that too much credit looks bad to lenders. This is not necessarily true. The most important factor that the lender takes into consideration is how close the applicant is to being "maxed out" on their credit. This is why you should make sure that you have more available credit than balances owed.
Debt to income ratio
Another major factor in a lenders determination of whether to extend a mortgage is the all-important debt to income ratio. Basically, your debt to income ratio is how much money you bring in vs. your total amount of debt. This includes credit cards, real estate, car payments, student loans, and any other debts that you may have incurred.
Debt to income ratio can make it difficult to buy a new home before selling your existing home if your lender does not think you have the income to cover two mortgages. If at all possible, you should sell your existing home before purchasing a new one. Also, you should pay off as many outstanding debts as possible before applying for a new mortgage.
How much home can you really afford?
After evaluating your credit score and debt-to-income ratio, you should have a much better idea of whether you can afford a new home, and if so, how much you can afford to pay for your new home. Be sure to take insurance and tax payments into consideration, as these are often added to your monthly mortgage payments. If you decide against the monthly addition, you will need to produce a lump-sum payment and should plan accordingly.
Once you have your financial information in order, it is time to find a lender. You can choose your personal bank, a private mortgage broker, or one of the many online services which provide quotes from several different lenders. Your realtor or home builder can help with finding the best mortgage broker.
Pre-approval puts you ahead of the game
After choosing a lender, it is a good idea to complete an application and obtain pre-approval for your mortgage. This does not obligate you to accept a mortgage or terms, it simply gives you an estimate on the maximum loan amount you can obtain from that particular lender. This information is critical when deciding the ideal price range for your new home and saves you the time and trouble of looking at homes outside your target price range.
If you find credit issues or blemishes in the course of your preparations or during the pre-approval process, it doesn't necessarily mean that a new home is out of your reach. Some lenders will approve a mortgage for the buyer with imperfect credit, but it often comes at the price of a higher down payment and interest rate. Take this into consideration when evaluating your target price range.
Reaping the benefits of preparation
By completing these simple preparations and realistically evaluating your financial situation, you will be starting out ahead of the game when it comes to purchasing your new home. You now have a target price range for your new home that suits your individual budget, and pre-approval for your mortgage. Now you can put all of your focus and energy into finding the perfect new home.
Lease Option To Buy Home
The bottom line is that if you do not have the money to buy a home you cannot move forward; it does not get much easier than that.
In order to determine if you have enough money to buy a home you will want to write down all of your expenses, as well as how much money you make on a regular basis.
This way you will know right from the start if you can afford a home, and if you can how much you can afford.
Another thing to consider is your current personal situation.
There are many reasons as to why you may need to move out of your current home and into a new one.
For instance, are you getting married? Maybe you have a child on the way?
If so, there is a very good chance that you will need to buy a new home that will more closely accommodate your living situation.
But remember, you must also take this detail into consideration with your financial situation discussed above. Even if you feel that you need a new home to accommodate your lifestyle, if you cannot afford it you may have to make some compromises.
As you can see, you may or may not be ready to buy a home. But one thing is for sure. You are the only person who can answer this question.
You need to look at how much money you have as well as your current living situation. This will allow you to get a good idea as to whether or not you can buy a new home, or if you should hold off on things for a little bit longer.
The question of whether or not you are ready to buy a home is quite common among a lot of people.
The fact of the matter is that buying a home is a huge step in anybody's life. So before you decide to move forward with this type of decision there are many things that you will first need to consider.
If you look into every last detail you should not have any problems answering all your questions, and in turn make a decision on whether or not you are ready to make a purchase.
Both Tom Beaty & Gerald Mason are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Tom Beaty has sinced written about articles on various topics from Buying and Selling Home, Sell Home and Buying and Selling Home. Real Estate Palm Coast Fl- Tom Beaty a real estate broker and home builders in Palm Coast, Flagler County, and Volusia County. Visit:. Tom Beaty's top article generates over 201000 views. Bookmark Tom Beaty to your Favourites.
Gerald Mason has sinced written about articles on various topics from Dogs, Gardening and Adwords. Download a free ebook that shows you how you can claim free land and property: http://www.freelandproperty.com Download a free ebook that shows you how to make amazi. Gerald Mason's top article generates over 40500 views. Bookmark Gerald Mason to your Favourites.
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