For many of us, the most significant investment we will ever make is purchasing a house. To those who have accomplished this already, this is a massive achievement in life, but those still planning for it might see it as an overwhelming challenge. Everything from finances to the home’s features are factors you have to seriously consider to ensure the quality of the investment.
Although you may feel like there is no way to prepare to buy a house, you can actually do a lot of things to ready yourself for the journey. In this article, we will list down what you can do before the process of shopping for a property:
Set a budget
One of the most important things you can do to prepare to buy a house, even if you are not close to your goals yet, is to determine your budget. You can do this by using an online mortgage calculator to estimate what you can afford.
For example, if you are interested in purchasing a $200,000 home, you will need at least a 5% down payment of $10,000. Closing costs are approximately 3% of the loan amount (around $6,000). In total, you would need to save around $16,000 to be eligible for the loan.
However, do take note that your financial situation can change. Mortgage calculators can also differ slightly. Just take this amount as an estimate for your budget. When in doubt, aim slightly higher.
Check your credit score
Your credit score will massively affect what mortgages you are eligible for and what kind of agreements you will find yourself in. To check your credit score, you will need a credit report from either TransUnion, Experian, or Equifax. If your score lies anywhere between 580 and 620, you are eligible for most programs.
You should also check the score for at least half a year to a year before getting a mortgage to give yourself time to improve it.
Calculate your debt-to-income ratio
Also known as the DTI ratio, this is the percentage of your monthly income dedicated to monthly payments. In many cases, lenders will prefer that your DTI ratio fall anywhere between 36% to 43%. Taking the 36% as the example, if your monthly income is $1,000, you cannot spend more than $360 per month for your monthly debt payments.
Note that some lenders will allow you to go much higher, but this will be based on other factors—like your credit score, other loans, or the fact that you may have plenty of money in savings.
Conclusion
All of the tips above are excellent for preparing to purchase a home soon or in the future. However, if there is one thing you must do right away, it is to start saving money. The earlier you save money, the more money you will have to work with. The greater your savings, the bigger and better the homes you can choose from!
With that in mind, start saving today to ensure you have plenty of money for your dream home when you finally decide to take the leap.
Benjamin Group Lending is your lending and real estate partner in Southern CA, offering services to help you discover the perfect mortgage and secure your dream home. Work with us today and get the mortgage you need.
