Sarah and Michael had always dreamed of owning their own home. They had saved up a down payment and were ready to take the plunge into homeownership. However, before they could even start looking for homes, they knew after speaking with their REALTOR that financial considerations and preparations are central to any home purchase. They knew getting preapproved for a mortgage would put them in a better negotiating position when it was time to make an offer to a seller. So, to start, they needed to assess their credit and finances to see if they were ready to get a mortgage. Here’s what their REALTOR explained were their next steps. Follow along their journey as these will help you too!
First, they checked their credit scores. They now knew that lenders would look at their credit scores to determine their creditworthiness and it would help determine the interest rate they would be offered on a mortgage. They were relieved to find that their scores were both in the mid-700s, which was considered good credit.
Debt to Income
Next, they looked at their debt-to-income ratio. This is a measure of how much of their income goes towards paying off debt, and lenders use it to see if borrowers will be able to afford their mortgage payments. Sarah and Michael had a few credit card balances and student loans, but they were able to pay them off before applying for a mortgage to lower their debt-to-income ratio. They also knew with their lenders’ help which ones to pay off first and if they could afford to buy their home even if they didn’t pay it all off first.
Finally, they looked at their savings and made sure they had enough for a down payment and closing costs. They also wanted to have a cushion for any unexpected expenses that might come up after they moved into their new home. After speaking with their REALTOR and Lender team, they were happy to find that they had saved up enough and felt confident they were ready to start their mortgage process and home buying journey.
Sarah and Michael were grateful they took the time to assess their credit and finances before looking for a home. With the help of their REALTOR and Lender, they understood exactly what they needed to do to get their finances in order. They were able to get pre-approved for a mortgage and start their search for the perfect home with confidence.
Financial considerations and preparations are central to any home purchase. In addition to helping, you make better decisions about what you can afford in a home, getting preapproved for a mortgage puts you in a better negotiating position when it’s time to make an offer to a seller. Getting a jump on your mortgage now can greatly alleviate headaches later. If you’ve already lined up a lender and secured a commitment on your mortgage, the process of closing on your new home will go much smoother. If not, be sure to work with your REALTOR to find a great lender to meet your situation.