One of the most important factors in determining which home is right for you is understanding your budget and financial limits. The cost of a new home and how you pay for it can be broken down by knowing how much of the down payment you can cover yourself and how much you need to borrow. We work with some of the best lenders in the area who have an in depth understanding of the local real estate market and are available to help walk you through this process.
GETTING PRE-QUALIFIED AND PRE-APPROVED FOR A LOAN
When you begin the pre-approval process for a loan the broker or lender will ask you a serious of questions relating to income and any outstanding debt you currently have. This information helps them determine the amount you are able to borrow, thus giving you a better understanding on budget parameters. Once your budget has been determined you will be given a pre-approval letter which is used by your realtor to negotiate on your behalf. Having this process completed before you begin your search gives you a competitive advantage over a buyer who may not have been pre-approved. It shows the seller you are serious and ready to make a qualified offer on the home.
FINDING YOUR FINANCIAL COMFORT LEVEL
Keep in mind that there are outside factors which need to be taken into consideration when determining how much you actually want to spend on your new home. Being approved for a certain amount does not necessarily mean you are comfortable spending that. It is imperative you evaluate your financial goals and think about future obligations, such as college funds, travel expenses, a savings account or family expansions down the road.
Once the amount you have been approved for has been determined there are additional expenses to take into consideration when deciding on what you are comfortable spending monthly. Those factors include but are not limited to homeowners insurance, property taxes, home repairs, maintenance and in some cases homeowners association dues. Also keep in mind that If your down payment is less than 20% you will be required to pay mortgage insurance. Each lender has different guidelines for their mortgage loan qualifications but in general, usually allow a maximum debt-to-income ratio of 41-43%. A lender will also consider a variety of factors, including your income, assets, down payment, credit score, debts, and job history. The higher your credit score, the lower your interest rate will be for conventional loans, which in turn means your monthly payment will be lower.
MORTGAGE LOAN OPTIONS
There are a variety of loans available, FHA, Conventional, and Veteran Financing, to name a few. Picking the right loan for you depends on your financial comfort level, amount of your down payment, and your qualifications. The lenders who work with us at Amy & Noreen Team of Lang Realty will evaluate your case and make recommendation for a loan program that will meet your needs. Closing costs are another part of the home buying equation that many people forget about. These are the fees charged by the lender and other parties you should be prepared to pay and make room for in your budget. In addition to needing cash to make a down payment, you may need cash towards the closing cost as well. Most of the time the buyer is responsible for the closing costs, but depending on the terms negotiated or type of loan, the seller can pay all or a portion of these costs.