Buying a home is a major commitment. It’s a bit like, well, getting married: you’ve got to be ready and you have to find the “right one.” Like a marriage, homeownership is a dynamic experience that requires a tremendous amount of care and attention.
If you are preparing to purchase a new home, you’ve got some legwork to do. Here’s where to start when buying a house:
Quite simply, the past can either haunt or help you. If your debt-to-income ratio is too high, financial institutions will likely be wary of extending you another loan. If you have had problems repaying past obligations, a lender will have trouble trusting that you will pay your mortgage on time.
You can increase your FICO score (a credit scoring model that helps lenders assess risk) by reducing debt, making timely payments, not shopping aggressively for credit, having a variety of credit instruments, and keeping at least one credit card for a long period of time. Significant improvements can be made in as few as six months. Here’s additional tips on polishing your credit.
Understand what you can afford
A good rule-of-thumb is that your house payment should not exceed 33% of your gross monthly income (that is, your income before any deductions are taken out), and total debt payments per month (including the mortgage) should not surpass 43%. This means that if you owe little consumer debt and have a household income of $75,000, then $2,000 in monthly housing costs is within your range. At Nusenda Credit Union, we want to help you find the right mortgage for your home purchase.
Consider applying for a preapproval
The Albuquerque Journal recently reported that the housing marketing is being “driven by low interest rates and big city buyers.” So, how can a buyer come up with a competitive offer on their dream home in a market with low inventory and low interest rates? Unless you’re planning to buy your home with all cash, getting pre-approved by a lender will give you guidance on your home buying budget. Nusenda can help you get your preapproval letter, will calculate your debt-to-income ratio, and assess your overall financial health. Potential buyers can expect the following to be reviewed during the preapproval process:
- Income statements, like W2s, 1099s, rental income and tax returns
- Assets, like bank statements and retirement accounts
- Debts, including monthly expenses like student loans, credit cards and other mortgages
- Records of bankruptcies and foreclosures
- Current rent, child support payments, alimony payments and any down payment gifts
Upon preapproval, you’ll receive a letter that will let you know how much you can borrow, and can also show a seller you’re serious about buying their home. Preapproval letters are especially important in a competitive market, when you’re likely bidding against other offers.
Finally, remember that home is not only where the heart is—it is also where the money is. You can get the most from your relationship with real estate by giving it the time and attention it requires, just like a marriage.
Are you ready?
Nusenda’s knowledgeable mortgage loan specialists can provide you with smart, savvy solutions to make your home purchase simple. You’ll also get competitive rates, and fast, locally based decision-making. You can start your application process online or call 505-855-5950 (800-347-2838 outside the Albuquerque area).
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