Are You Ready to Buy a House?

Thinking you want to buy a house? See if you’re ready here:

Are you ready to buy a houseYou dream of living in your own house, but the question is whether you are prepared to finance this huge purchase. Unless you have saved up hundreds of thousands of dollars, you will need a mortgage loan as well as savings. This guide will help you figure out whether you are able to secure both components and use them efficiently.

Monthly Income 

The most important thing to do before buying a house is to ensure that you have enough income to repay the mortgage which you will use for financing the purchase. You have to be able to allocate around 30% of your monthly income towards the loan repayment. If the loan will cost a greater chunk of your income, there is little point in taking it out and risking losing your property easily. In some cases, lenders will approve a loan with installment corresponding to 44% of the applicant’s income, but you have to meet specific requirements for this.

Savings 

Most lenders offering commercial loans require a down payment of at least 5% of the purchase price of the property so you need to have sufficient savings to make it. If you want to avoid paying private mortgage insurance, you need to put down 20% of the property price. The government-backed loans for first-time home buyers require down payment of 3.5%. Loans with no down payment are available only via smaller and more restricted government programs.

Credit Score 

Currently, in order to qualify for a conventional home loan you will need a credit score of at least 680. You can secure a lower interest rate if you have a score of 740 or higher. The minimum credit score required for government-backed loans is 620. You should note that these are general number and the requirements may vary from one lender to another. That is why it is best for you to get precise mortgage info on the matter before you make any loan applications.

Recent Credit and Payment History 

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Loan Type

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If you are a reliable borrower and payee, you have the best chances of securing a mortgage loan. When lenders look at your recent credit and payment history, they would like to see that you are paying all your monthly bills on time and that you are using your credit cards wisely without exceeding 30% of the monthly limit.

They have become much stricter after the housing market crisis from 2008 and they will look even in seemingly minor details such as whether you are paying your rent and utility bills on time. It is best if you do not take out any personal loans or make big purchases in the months before making a loan application as such an act may have an adverse effect.

Debt-to-Income Ratio 

The lower your debt-to-income ratio is the higher your chances of getting a mortgage and buying a house are. A lower number will also help you secure more financing to buy a home. At present, commercial lenders require debt-to-income ratio which does not exceed 45%. You can qualify for a government-backed loan even if you have ratio of 57%.

Past Delinquencies 

If there are black spots in your credit history like late payments, collections, foreclosure and bankruptcy, you need to be able to explain the situation to the lender and present the measures which you have taken to ensure that such an issue will not arise again. Generally, there are set waiting periods before individuals, who have short sold their house or have had it foreclosed, can apply for a home loan again. The same applies to those who have filed for bankruptcy.

Employment 

Lenders prefer to grant home loans to individuals who have had secure employment with reliable employment income for the past 2 years at least. Those who work for a stable company in a major industry have the best chances. If you are self-employed, you need to demonstrate stability by showing greater savings, by setting aside reserves for the loan repayment and/or buy purchasing an annuity which will bring stable monthly income to you throughout the term of the loan.

You need to meet all of these requirements in order to buy a home. It is best if you get pre-approved before you go on and look into different homes for sale. This will give you more room for negotiating the sales price in addition to peace of mind.

Christian

Christian

Christian Calvin mortgage Christian is a contributing writer for Mortgage.info. He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.

Contact: christian@mortgage.info
Christian

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