A how-to to buying a house
BUYING a house is a major commitment. Before you begin shopping for properties or comparing mortgage options, you need to make sure you’re ready to be a homeowner. Let’s look at some of the factors that lenders and homeowners alike should consider.
Income and employment status
Your lender won’t just want to see how much money you make. They’ll also want to see a work history (usually about 2 years) to make sure your income source is stable and reliable. Preparing your income is all about pulling the right documentation together to show steady employment.
Debt-To-Income Ratio
Debt-to-income ratio (DTI) is another financial instrument mortgage lenders use to evaluate your loan application. Your DTI helps your lender see how much of your monthly income goes to debt so they can evaluate the amount of mortgage debt you can take on.
DTI is calculated by dividing your monthly debt by your gross monthly income. It’s smart to review your DTI before you apply for a loan. In most cases, you’ll need a DTI of 50 per cent or less to qualify for a mortgage, although this number varies based on your lender, loan type and other factors.
Credit health
Your credit score plays a huge role in what loans and interest rates you qualify for. Your credit score tells lenders how risky you are to lend money to.
Taking steps to improve your credit score and reduce your debt can pay off big as you prepare to get a mortgage. Better numbers mean better loan options with lower interest rates. Your credit score is based on the following information:
Your payment history
The amount of money you owe
The length of your credit history
Types of credit you’ve used
Your pursuit of new credit
What score will you need to qualify for a home loan? Most lenders require a credit score of at least 620 to qualify for the majority of loans. A score above 720 will generally get you the very best loan terms.
Willingness to live in one place
A mortgage can be a long commitment. Though you don’t need to live in your home for the entirety of your mortgage term, it’s still a big decision. When you own a home, it’s more difficult to move. Unless you’re buying a second home, you might need to sell your current home first, which can take time.
Decide whether you’re ready to live in your current area for at least a few more years. Consider your career goals, family obligations and more. Each of these factors will play a major role in the type of home you buy and where you set up your primary residence.
Timing
Deciding whether it’s a good time to buy a house or not depends on a variety of personal factors (such as financial readiness and lifestyle preferences) and market conditions (such as economic health and current mortgage rates).
Ultimately, the right time to buy a home comes down to your own unique situation. Be sure to consult a financial expert before making any big financial decisions such as buying a house.