Ready to Buy? Here Are 5 Questions to Consider.

Buying your first home is a huge step. To be sure you’re prepared, here are five questions you should ask before embarking on your home search:

1. Does your financial picture support your requested mortgage amount?

Your lender will compute your debt-to-income ratio to determine how much house you can afford. He or she does so by taking your total monthly debt divided by your gross monthly income. Qualifications vary from lender to lender, but you should expect your DTI ratio to be 50% or lower to qualify. If you are self-employed and claimed a loss on your business, your lender will decrease your income accordingly when computing your debt-to-income ratio.

2. Is your income and employment verifiable?

Your mortgage lender will want to verify your income and review your job history, usually going back about two years. Job lapses should be minimal and job changes should ideally show an increase in income.

3. Can you comfortably cover the down payment and closing costs?

Most prospective homeowners focus on saving a minimum of 3% of the anticipated home value for a down payment. But you’ll also need enough liquid assets to cover closing costs, which include lender’s fees, the title company fees, and other costs, including the deed registration and title transfer fee. Many prospective homebuyers are surprised to learn these costs often run between 3% and 6% of the home’s value, essentially doubling the liquid assets needed.

4. Is your credit score in order?

You can expect to need a minimum 620 credit score. In addition to qualifying for a loan, your credit score will determine how good your interest rate will be. Taking time to boost your score to 720 will get you the best interest rate, saving you considerable money over the life of the loan.

5. Is the timing right?

Low interest rates make it a great time to buy a home, but that’s not the only factor in determining whether this is the right time to buy. If you have children, consider waiting till the end of the school year. There may be other family issues that come into play as well. In addition, consider whether you have other major expenditures on the horizon that could impact your home-buying plans.


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