What can you afford?
Important Step Before You Begin to Look…
Now that you know what you’re looking for, the next step is figuring out what type of home you can afford. A review of your income, savings, monthly expenses, and debt will be necessary.
- Early on in the process, you’ll want to get pre-qualified for a mortgage loan, which helps determine how much you can afford.
- It enables you to move swiftly when you find the right home, especially when there are other interested buyers.
- It also indicates to the seller that you are serious and can afford to buy the property.
- A pre-approval is a simple calculation done by a mortgage lender that tells you the amount you’ll be able to finance through a loan and what your monthly payment will be.
- When you find a home to buy, a pre-approval also reassures the seller that you have the financial means to purchase his or her home.
Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. It pays to check with a lender before you start searching for a home.
The price you can afford to pay for a home will depend on several factors, such as:
- gross income
- the funds you have available for the down payment, closing costs and cash reserves required by the lender
- your debt
- your credit history
- the type of mortgage you select
- current interest rates
Another figure lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (also known as PITI).
Each buyer is unique and a mortgage professional can help you find out just what you can afford. Your income and your debts will typically play the biggest roles in determining your price range. It’s simple to make an estimate, just run the numbers for yourself using our Affordability Calculator.
CENTURY 21 Larry Miller Realty professionals have the expertise to connect you with the perfect lender and direct you down your “Path to Homeownership”.
Why is Your Credit Report History Important?
A credit report is used by lenders as one measure of the risk and a borrower’s likelihood to repay. There are numerous types of credit report issues that would cause a lender to reject your application for a loan, including: missed credit card payment(s), default on a prior loan, bankruptcy in the past seven years, or non payment of taxes. Other black marks on a credit report include any judgment (perhaps for non-payment of spousal or child support) or any collection activity.
If you feel that your credit report is wrong, experts say it’s best to take it up with the organization or company claiming you owe them money. But if you’ve been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payments were an aberration.
You can order a copy of your own credit report by calling the three major credit reporting agencies: Experian at (800) 311-4769, Equifax atand Trans Union at (312) 408-1050. Please note that every time your credit report is ordered, there are points deducted which could lower your overall score.