Buying a home is a part of the American dream. But, as anyone who has ever bought a house before knows – it is not as simple as choosing a house and putting in an offer. There is far more to it than that. Buying a home may be one of the largest financial investments and life decisions you ever make. So, it is important to enter the home buying process with eyes wide open, armed with knowledge. Below are 3 things we believe everyone needs to know before they take out a home loan.
Here Are Three Things You Need to Know Before Taking Out a Home Loan
1. Know Your Credit Score
Your credit score is arguably one of the most, if not the most, important component of taking out a home loan. This is because this is a make-or-break kind of thing. If you have too low a credit score, you may not be able to get approved for a home loan at all. And, if your credit score is low-moderate, you may end up paying higher mortgage rate. Or, you may not be approved for the amount you need to buy a home. Always know your credit score before filling out mortgage paperwork so that you can make an effort to raise your credit score if necessary.
2. Know Your Debt-to-Income Ratio
Debt-to-income ratio is an important ratio because if you have more debt than you have income you may not be able to pay your bills. And, a mortgage company wants to know that you will pay your mortgage each month. Your debt-to-income ratio could be askew regardless of how much you make, it all depends on how much debt you have. Check this before to determine if paying down or consolidating debt would be beneficial for your home buying process.
3. Know How Much You Want to Spend
We are not just talking about the maximum amount you have been pre-approved to spend. During the process of getting a home loan you will be pre-approved for a particular amount. For example, let’s say you are pre-approved to spend $500,000. While you may theoretically want to spend the maximum, you will have to pay that back each month and the monthly payments may be more than you want to spend. Don’t make yourself house-poor, take a look at your monthly expenses and determine what amount you would be most comfortable spending and then spend only that much, even if it is less than what you have been pre-approved for.