How Much House
Before you start looking for a home, it’s important to know how much you can afford. The best way to do this is to have a lender pre-qualify you. You’ll have to qualify for a mortgage eventually, but it’s best to do it up front for a couple of reasons. First, you’ll know the price range of homes you should be looking in. This keeps you from finding a home you love but can’t afford. Second, when you find the right home, the seller will know you’re a serious buyer and that the sale won’t stall out after the sales agreement is signed because you can’t get the loan you need.
Keep Your Financial Picture Clear
As you’re looking for a new home, keep this in mind. Because buying a home is such a large financial commitment, lenders care about your finances in the weeks and months prior to your obtaining a mortgage. Don’t make any big purchases, keep your financial picture as clear as possible by not transferring funds around from various banking and investment accounts, and don’t change jobs, unless, of course, you’re moving to take a new job.
What Lenders Look At
How much you can afford is dependent on more than just your total income. It's also dependent on the type of mortgage financing you choose as well as your monthly debt payments. Lenders look at your total household income, your debt-to-income ratios and your net worth (your total assets minus your total liabilities). From these numbers they determine your maximum loan amount, your maximum monthly mortgage payment and minimum down payment.
The greater your net worth, the more house you can afford and the smaller your interest rate and down payment will be. There are two debt-to-income ratios: one tells a lender how much of your gross monthly income goes toward paying your housing costs, and the other tells them how much goes toward paying both your housing costs and your monthly bills. These ratios tell a lender how much you can afford on a monthly basis.
It may sound terribly complicated, but the process of pre-qualifying yourself is fairly painless. The lender does most of the work. You just provide them with the information they need.
Shop Around
Once the lender has done the math, there are different lending products they can offer you. The guidelines that lenders follow are more flexible than they used to be, especially with regard to the debt-to-income ratios. In recent years, you’ve probably noticed that the lending business has become very competitive. Television ads show lenders lining up at your door to offer you a better deal. In reality, they won’t line up at your door, but they’ll be extremely receptive when you walk through theirs.
Don’t be afraid to shop around for the best loan. Make these lenders sharpen their pencils. Working with a local bank or lending institution has its advantages, but there are also many options on the Internet. You’d be surprised what just a small amount of research can save you. For a list of local lenders, visit our Buyers Resources page.
Down Payment
Depending on your financial picture, the down payment on a home could be as high as 20% or as little as nothing down. If your lender gives you the option of nothing down, they’ll most likely require you to take out private mortgage insurance to protect them in the event you’re unable to make your monthly mortgage payments some time down the road.
Something else to keep in mind. If you have the money to make a larger down payment than the lender requires, it’s not necessarily a good idea to do so. While you’d be borrowing less and your interest payments would be smaller, you’ll have less interest to deduct from your taxes. Which means you’ll have less cash on hand. That extra money can come in handy when you consider moving expenses or new furniture and fixtures for the home.
Pre-qualifying Summary
Once you’re pre-qualified, you know exactly how much house you can afford. Being pre-qualified by a lender makes it easier to negotiate with a seller because the seller will know there’s no risk of you not being able to get a loan once the sales agreement is signed.
Keep Your Financial Picture Clear
As you’re looking for a new home, keep this in mind. Because buying a home is such a large financial commitment, lenders care about your finances in the weeks and months prior to your obtaining a mortgage. Don’t make any big purchases, keep your financial picture as clear as possible by not transferring funds around from various banking and investment accounts, and don’t change jobs, unless, of course, you’re moving to take a new job.
What Lenders Look At
How much you can afford is dependent on more than just your total income. It's also dependent on the type of mortgage financing you choose as well as your monthly debt payments. Lenders look at your total household income, your debt-to-income ratios and your net worth (your total assets minus your total liabilities). From these numbers they determine your maximum loan amount, your maximum monthly mortgage payment and minimum down payment.
The greater your net worth, the more house you can afford and the smaller your interest rate and down payment will be. There are two debt-to-income ratios: one tells a lender how much of your gross monthly income goes toward paying your housing costs, and the other tells them how much goes toward paying both your housing costs and your monthly bills. These ratios tell a lender how much you can afford on a monthly basis.
It may sound terribly complicated, but the process of pre-qualifying yourself is fairly painless. The lender does most of the work. You just provide them with the information they need.
Shop Around
Once the lender has done the math, there are different lending products they can offer you. The guidelines that lenders follow are more flexible than they used to be, especially with regard to the debt-to-income ratios. In recent years, you’ve probably noticed that the lending business has become very competitive. Television ads show lenders lining up at your door to offer you a better deal. In reality, they won’t line up at your door, but they’ll be extremely receptive when you walk through theirs.
Don’t be afraid to shop around for the best loan. Make these lenders sharpen their pencils. Working with a local bank or lending institution has its advantages, but there are also many options on the Internet. You’d be surprised what just a small amount of research can save you. For a list of local lenders, visit our Buyers Resources page.
Down Payment
Depending on your financial picture, the down payment on a home could be as high as 20% or as little as nothing down. If your lender gives you the option of nothing down, they’ll most likely require you to take out private mortgage insurance to protect them in the event you’re unable to make your monthly mortgage payments some time down the road.
Something else to keep in mind. If you have the money to make a larger down payment than the lender requires, it’s not necessarily a good idea to do so. While you’d be borrowing less and your interest payments would be smaller, you’ll have less interest to deduct from your taxes. Which means you’ll have less cash on hand. That extra money can come in handy when you consider moving expenses or new furniture and fixtures for the home.
Pre-qualifying Summary
Once you’re pre-qualified, you know exactly how much house you can afford. Being pre-qualified by a lender makes it easier to negotiate with a seller because the seller will know there’s no risk of you not being able to get a loan once the sales agreement is signed.
posted by Jan McBee at 11:00 PM
0 Comments:
Post a Comment
<< Home