What to Do to Buy a House
Knowing what to do to buy a house requires research and education. Homebuyers who approach the buying and lending process with little knowledge may receive a rejection letter from lenders. Different factors can trigger a rejection, such as credit issues or employment issues. Advance preparation is key to buying a house with few difficulties.
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Save for a Down Payment
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Down payments are an aspect of buying a house that may catch some buyers off guard. There was a time when buyers could purchase a house with no money down, providing they had a good credit score. Lending guidelines have shifted, and the majority of lenders do require upfront cash or a down payment. Fortunately, lenders do not ask for 20 percent down, as they once did. With FHA mortgage loans and low-down payment mortgage loans, buyers can qualify for a mortgage with as little as 5 percent down.
Personal Finances
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Annual income and other personal assets also play a role in buying a house. Lenders need to review your finances to ensure that you can afford a house. Buying a house involves more than making a mortgage payment every month; there are utilities and maintenance to pay for. For this reason, lenders often only approve buyers for mortgages with payments that do not exceed 28 percent of their gross monthly incomes. Capping payments at 28 percent creates a financial cushion, which allows buyers to manage other household expenses and perhaps create a savings account. Lenders use W-2 statements and tax returns to assess monthly or yearly income.
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Fix Credit Score
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Fixing your credit score is another crucial aspect of buying house. Going into the buying process with a low credit score may result in a loan rejection; or if approved, you're likely to pay a much higher interest rate than someone with a good credit rating. Buying a house with at least a 680 credit score, according to the Home Loan Learning Center website, not only helps you qualify for a home, but also helps you get the most favorable mortgage rate. Low mortgage rates help decrease the monthly mortgage payments, and you'll pay less interest over the mortgage term.
Meet With a Broker
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Meet with a broker once you're ready to buy a house to determine how much you can afford. Pre-approvals let you know what you can spend on a mortgage early in the process, and comparison shopping provides you with free mortgage quotes from different lenders. Mortgage quotes compiled by brokers provide information on programs for which you qualify, and the interest rate, closing costs and monthly payment for each loan.
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References
- Photo Credit house image by hans slegers from Fotolia.com
