Buying your first home is one of the biggest investments you’ll make. It’s an important decision that you should only make if you have your finances in order. If you plan ahead you can afford your monthly payments and have a nest egg for your retirement.
There are many factors that determine the amount of money a lender will loan. Items such as your debt-to-income-ratio, sources of income and credit score. Check your FICA score and consult with a company like the Flagship Financial Group. This way you’ll know exactly where you stand.
Most lenders look at the last two to three-year history. They check to see how many open accounts you have, that you make monthly payments on time and how many inquiries you have. Having established credit is good. But, having too much can create an opposite effect and actually reduce your score. Lenders also check to see what your balances are on your credit cards and loans. For example, if you have a car loan and you owe less than 12 months it won’t change the amount of money you can borrow. However, if you have more than a year until the end of your loan, it will factor into the approval amount of the loan.
Generally, if you have a good credit score, 720 or better, you can borrow up to 2 to 2 1/2 times your gross income. From that figure, any debt other youâ€™re your utilities is deductible. This can include a personal loan, credit cards and student loans. Any of these will reduce the amount you can borrow. If the final number is less than what you need, you may need to pay something off before applying for a loan.
It is also important to remember that the more you put down on a house the lower the mortgage payment. Most lenders prefer 20 percent down. There are banks that will take as little as 5 percent down with a good credit score. But, keep in mind that they will add P.M.I. insurance to your monthly payment. This will remain until you’ve reduced the loan amount by the 20 percent. So depending on the amount you borrow this can add hundreds of dollars each month. Also, it will take several years to reduce the numbers to where you no longer need to pay it.
For most first time buyers the process leading up to actually buying a home is overwhelming. This is where companies like Flagship Financial help to simplify the paperwork. As professional brokers, they have access to banks and other lenders. Their job is to find the best rate with the least amount of out-of-pocket expense to you. They pull your credit score, they find a lender and then they assist you every step of the way. Their job is to make the process as uneventful as possible. When you know what to expect a lot of the anxiety and fear goes away.
When it comes to buying a home you should always plan ahead. Don’t take on more than you can handle. Instead, it’s best to sit down and figure out a realistic payment amount that you can afford. By doing this, you’ll be able to enjoy being a homeowner.