There are numerous misconceptions about buying a home, such as you need at least a 20% down payment, near-perfect credit, and a certain income level. However, the truth is that you do not require a specific down payment, salary, or an amazing credit score of 700 and above to become a homeowner. What you require is an understanding of the home buying process, readiness, and strategy. Check out this guide to help you understand what you need to get started on your home buying journey
Credit
Your credit score is one of the main variables lenders will consider when checking your mortgage application. This score helps lenders assess how successfully you have handled debt and made timely payments before. Knowing your current credit score helps you understand which loan programs you qualify for.
Debt-to-Income Ratio (DTI)
Your DTI is important for calculating the size of your mortgage and the type of loan program you are eligible for. You can calculate it by dividing your gross monthly income by your minimum monthly debt payments.
Mortgage lenders prefer a DTI ratio of 36% or less for traditional loans. Some lenders may tolerate up to 45% or even 50%. Some leeway is available, but if you have a relatively high DTI, you may need to shop about.
Proof of Income
Despite having a nice credit score, most lenders still demand that you show proof of income. This assists your lender to verify that you can pay the mortgage.
For mortgage pre-approval, you will probably have to provide W-2s, your 2 most recent pay stubs, and your 2 most recent federal tax returns. If you are self-employed, you must provide a year-to-date profit and loss account and 2 years’ worth of records.
If you do not have consistent income or employment, New Buffalo MI real estate agent Chad Gradowski advises waiting till you have one before applying for a mortgage
Savings for a Down Payment and Closing Charges
You might have heard that you require not less than a 20% downpayment, which can be quite an intimidating figure. However, this is inaccurate as most homebuyers even put 13% on downpayment.
The only catch is that the less you put down, the higher your interest rate might be. Often, you will require a 20% downpayment to avoid mortgage insurance premiums or private mortgage insurance.
Moreover, you should be mindful of the closing expenses, which sometimes account for up to 65 of your loan. These costs include appraisal fees, title searches, bank processing charges, attorney fees, and more.
Mortgage
Unless you are buying cash, once you find a home you like, and agree with the seller to buy the home, you will often need a mortgage. You must decide how long you want your mortgage to last, and the rate (whether adjustable or fixed), among other details.
Once you file your application, you will send proof of your financial eligibility. As your file progresses through underwriting and into final approval and closing, you will most likely encounter questions you must work your way through.
Explore Homes for Sale in New Buffalo
Finding the ideal home is a dream come true, but without preparation, you may be in for an unpleasant surprise. Before hunting for that home, you must do some preliminary work to be ready to close the sale. If you want to invest in New Buffalo real estate, but do not have much experience with the homebuying process, Chad Gradowski is there to help. Chad will guide you through every step of the way to ensure you have a smooth experience and secure the best deal.
