Getting a mortgage may seem like a complicated and nerve-wracking task, whether you are a first time homebuyer, or are getting ready to sell your current home. You may have given some thought about what kind of loan you will qualify for. Here are some tips to help figure out just where to start! Home buying doesn’t have to be such a scary process, if you are prepared.
Getting pre-approved is a great way to begin budgeting, so that you know how much home you can afford. You should start this process before you even begin house hunting so that you don’t fall in love with a home that is way out of your price range.
Calculate your DTI
When you are ready to finance your home loan, you should figure out what your debt-to-income ratio is. Lenders use this ratio to help determine if you qualify for a home loan. This ratio is calculated by adding up all of your monthly debts and dividing it by your gross monthly income. You will need to consider the potential mortgage payment, any auto loans or leases, student loans, personal loans, and credit card payments you are required to make each month. Lenders won’t consider things like your cell phone bill or car insurance in the DTI.
Your DTI should be lower than 43%. This is the threshold many lenders use to determine affordability. You will not get approved for a conventional loan if your DTI exceeds 50%. If you are getting close to 50% with an estimated home loan payment, you may need to consider finding a less expensive house or putting more money down.
Prepare Your Downpayment
When you are budgeting for your new home, you will need to consider how much of a down payment you can afford. Putting down a larger amount will be more favorable in terms of affordability for your monthly payment, but it is not absolutely necessary to put 20% down. Some loan programs will allow a first time homebuyer to put as little as 3% down. Loans with less than 20% down will require private mortgage insurance and will increase your monthly payment.
Don’t Overextend Yourself
Consider how much you’ve been paying for your current rent or home loan. Do you struggle to make ends meet with this payment? Or, have you built up a decent savings because you keep your living costs low? Lifestyle plays a big role in how much home you can afford. If you have very minimal credit card or student loan debt, you may be able to afford a higher priced home.
Seek Help From Heritage Bank
When dealing with personal finances and big life decisions, you want someone who you can trust to be there with you every step of the way. When you are ready to finance your home loan, visit Heritage Bank for information on how to make your home buying dreams a reality!
As a Branch Manager, Kay helps personal and business clients by providing products and services designed to meet their individual needs. A dedicated volunteer with the City and County, she has over 33 years in banking and a vast knowledge of financial services. Kay is able to provide financial counseling through consultative conversations as a part of her role. Whether your needs are deposit or loan related, contact Kay and see how she can help with your individual financial security!
Asst Vice President & Branch Manager • 770-515-7073 • [email protected]