Buying your very first house can be an exciting endeavor; however, you must start by analyzing your finances so you can make calculated decisions at the time of applying for a home loan. You should know that you cannot rush through the extensive process of buying your first house, which is why you must have a systematic approach to it. Believe us when we tell you that the more time you are willing to invest in the preparation process with the help of careful consideration, the result of your eventual home purchase will be a satisfactory one.
Read on to learn more.
Preparing Credit Score for Home Loans
Did you know that in order to qualify for home loans, you must prepare your credit score because any lender that you choose will analyze your credit score before they decide whether or not to provide you with the much-needed money. In other words, your credit score plays a massive role in home loans. The underlying reason is that your credit score actually reflects your ability to handle finances and repay debts in a timely manner. Understandably, these aspects are important to potential home loan lenders, which is why people with better credit scores secure better home loans that come with a lower interest rate.
So, before you even start house hunting, you must get your credit score right and aim for a higher credit score because a higher credit score will assist you in getting a lower interest rate and lower monthly payments.
Analyze the Amount You Have for Making A Down Payment
Apart from preparing your credit score, you must make a realistic budget so you can determine the amount that you have ready for making a down payment. If you are somewhat familiar with the home-buying process, you already know that your down payment is actually the first payment that you will make towards buying a house. Similar to the credit score, the more money you are ready to put down, the greater reduction in your potential home loan you can expect, along with a reduction in the monthly payment structure.
You should know that your down payment depends on your monthly income and recommended loan, which means that it can be as low as 1.25%.
Understand Your Monthly Expenses before Applying for Home Loans
Now that you have analyzed your credit score and the amount that you can contribute towards your down payment, it is time to have a realistic overview of your monthly expenses. You should do that before applying for home loans, especially if you are looking for mortgage insurance. Suppose you are planning for a conventional loan, but you are unable to put the specific percentage down, then a mortgage insurance can be your best option. However, it is important to have a realistic perspective of your monthly expenses.
Understandably, not all home loans will require insurance, but once you know your real monthly expenses, the mortgage loan provider or a financial advisor can help you determine what type of home loan is right for your financial situation.
Conclusion
At the time of buying your first house and applying for a home loan, you must calculate your DTI, which stands for debt-to-income percentage. This is the ratio from your monthly income that goes towards your debt payment. Banks usually refer to the debt-to-income ratio as a way to determine if your income and potential debts are on a spectrum that will enable you to support a home loan. A financial advisor or a home loan officer can help you do the calculations so you know what your DTI percentage is.
