Client-Focused Representation In Real Estate Matters

Getting your financial act together (to buy a home)

On Behalf of | Jan 14, 2023 | Real Estate Transactions |

You’re ready to leave the rental behind and buy your own home, but is your bank account as ready as you are?

Most people don’t really know what they need to do to financially prepare to apply for a home loan, but not having everything together can lead to lots of lost dollars – or even the utter failure to secure a mortgage loan at all (especially when inflation is high and banks are wary).

What do you need to do to prep your finances for a mortgage application?

First, no matter where you are in this process, don’t panic. Everybody has to start somewhere. With that in mind, here are the first three basic steps:

  1. Pull your credit record. The three big credit reporting agencies are Experian, Equifax and TransUnion, and you don’t necessarily know if the lender will use one or an aggregate of all three. You can obtain credit records from all three (along with your credit score) and check for errors that could cause problems.
  2. Find out if your debt-to-income ratio is acceptable. You need to add in all your fixed monthly expenses, like student loans, rent and credit card payments, then divide that total by your monthly gross income. Once you have the percentage, you want to make sure that your anticipated mortgage is no more than 28% of your gross income and no more than 36% of your overall debt.
  3. Look at your down payment. It’s always worth considering what money you have to put down on a home. You will generally need between 3.5% and 20% of the purchase price of a home in cash (depending on which lender you use and what program, with FHA loans being among the most flexible). It’s worth noting that the bank usually wants to see that money resting in your account for a few months before you put it to use, too.

When you start off on the right foot, it’s much easier to pursue your goals – including closing on the home of your dreams. Experienced legal guidance can also be of significant assistance as you move forward.