Being informed is important when making big financial decisions, such as buying your dream house. Remember to take the time to educate yourself about what you are getting into before committing to buying any property for a smooth transaction and a pleasant home buyer experience.
To help you get started, here are a few things to consider before you buy a house. These tips are really simple but they are worth your time and effort.
Your Credit Score
Your credit score is one of the biggest factors in your loan terms and is one of the most important things to know before buying a house. Before trying to get a loan, know your score and if it is lower than 700, take time to fix it.
According to CNBC, a good credit score can help you receive better-than-average APRs from lenders and increased approval odds for credit, such as a mortgage, a lease or a car loan. You can also get your loan at a low-interest rate which could mean you savings of tens of thousands of dollars over the course of the loan.
Lender pre-approval
One of the most important steps in the home buying process is the pre-approval. It lends flexibility in terms and it means that you should be able to get the loan as long as nothing changes about your financial situation or your credit score. It also helps when you want to compete with another buyer for a home you love because it makes you a more attractive buyer.
Financial situation
To be sure of your financial situation, have a check on your income first. How much income is needed to earn to buy a home? In this case, a free online mortgage qualification calculator comes in handy. This calculator will automatically compute the required annual salary and the equivalent monthly earnings you need based on the price of the property you want to acquire.
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What are the details that you need to input in the calculator? You need the actual home price, your down payment – remember, it must be at least 20% of the price of the property so you won’t have to pay for mortgage insurance - and the mortgage amount. You can obtain these information from your agent.
For the Mortgage Structure part of the calculator, you have to provide the term of loan which is 30 years, the longest. For the PMI, you can put “zero” if you are going to pay at least 20% down payment but it is advised to set some allowances on the figures so the estimated result would be realistic. Just put at least 0.5% for PMI, since it is okay to get higher results in the calculator. For the annual interest rate, 4.5% is standard; although in the US, the current rate amidst this pandemic is at 4% - again it is okay to go beyond the actual rate, but do not go below.
You also have to know the details of the other ownership costs such as the annual real estate taxes, home owner’s insurance and HOA monthly dues, which can be asked from your agent.
If you currently have other loans or payments, you have to honestly provide them in the Other Debt Info portion.
Lastly is the Debt to Income Ratio. If you are finding it hard to get these details, you may ask help from your agent but here’s how to get those figures by yourself.
The front-end debt-to-income ratio is calculated as housing expenses (such as mortgage payments, mortgage insurance) divided by the gross income.
The back end DTI is the ratio of all of your expenses appearing on your credit report plus your new mortgage payment including taxes and insurance divided by your gross monthly income. However, it does not include things like utilities, health insurance or groceries.
Knowing what to do before buying a house is indeed critical. If you follow all of these tips before buying a house, will increase your odds of having a successful transaction and a pleasant buying experience.
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