Most of us dream of owning a home. But if you are unaware of the reality, you are in for a nasty surprise. Before you pounce on the right opportunity, you must do some preliminary work and be ready to seal the deal at the perfect moment.
Now, what do we mean by “doing some preliminary work”? It means you have to be prepared to buy a property by saving up the down payment, finding a suitable mortgage lender, verifying your credit score, putting aside money for closing costs, minimizing your earlier debts, and securing a pre-approval for your mortgage. All these need proper planning and execution.
Arranging the down payment
A down payment is the initial amount that you pay to secure your buy. It’s usually set at 20% of the property value. If you cannot arrange for that sum, check for your eligibility for an FHA loan. If you have served in the US Armed Forces, you are a good candidate for a Veterans Administration-backed loan. Even your family members can come together to pay the down payment on your house, and you can repay them once you are in a position to do so.
Choosing a lender
Various banks have their own rate of interest on loans, and a minimal difference in them can add up to a large sum over the span of 20 or 30 years. Start with the bank with which you already do business. Check on small community banks, credit unions, and online money lenders. Wherever you go, keep a mortgage calculator with you. Also, property web pages like fourleafprop.com will guide you through the process as they have their own money lenders.
Verifying your credit score
Lenders run a full-proof check on your current financial situation as soon as you apply for a home loan. It’s so because they need to have the assurance that they will get their loaned money back. A good credit score will bring you better interest rates. But if you have a low credit score, you may not even qualify for a loan. No lender will work with you if your credit score is below 620.
Reducing your debt-to-income ratio (DTI)
It is the portion of your total income that goes into debt repayments and paying monthly interest. The lesser the number, the greater the chance of securing mortgage requirements. Banks go through your DTI to see if you are in a position to bear the burden of a loan payment along with other debts. To minimize the DTI, you can clear some outstanding debts before applying for a mortgage or find ways to increase your income.
Closing costs
You will have to keep aside some money for the closing costs. It’s the money that you pay to the different parties (as their fees or charges) at closing. Usually, it comes to around two to five percent of your property’s value.
Conclusion
When you want a mortgage, you have to keep all the documents ready as you will have to go through a pre-approval stage. Once you get a clean chit over here, the actual process starts, which can be exhaustive.
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