Consider Your DTI
Another factor your mortgage lender will consider is your debt-to-income ratio (DTI). Your DTI is the percentage of your monthly income that goes toward debt payments. Most lenders look for a DTI below 50%, but some lenders may require lower ratios for certain loans.
If your DTI is higher than you would like, you may want to focus on paying down debt first. Not only will this make you a more attractive mortgage applicant, but it’ll put you in a stronger financial situation when you do buy a home.
Save Your Money
Buying a house is a lot more expensive than you might realize, which is why it’s essential to focus on saving as much as possible. You’ll need to make a down payment toward the home in most cases. Some lenders will accept down payments that are lower than 20%, but that usually means you’ll also have to pay for private mortgage insurance (PMI) if you’re getting a conventional loan.
In addition, you’ll need to account for closing costs, moving costs, property taxes, new furniture you may need to buy, and other expenses that come with buying a new home. If you’re having trouble saving for a house, you may need to cut some discretionary items from your budget.
Determine What You Want And What You Can Afford
Before you can start thinking about what you want in a home purchase, you need to figure out how much house you can afford. A home affordability calculator can be a valuable tool to help you figure this out. It isn’t perfect, but it can give you an idea of the types of homes you’ll be looking at when you start house hunting.
And keep in mind, when you buy a house, you’re responsible for any maintenance that comes with it. If your dishwasher breaks or the AC goes out, there’s no landlord to fix it for you. So be sure to budget for the cost of unexpected repairs and regular maintenance.
Once you know what you can afford, you can start to think about what you want in a home. Do you prefer a condo or single-family home? Do you want a big backyard or a sizable kitchen?
Jot down some ideas about the must-have features you’re looking for in a home. Taking a home buying quiz is another great way to narrow down what you want in a home. Once you begin working with a real estate agent, this will help them find houses that meet your criteria.
Get Preapproved
And finally, you want to get preapproved for a mortgage before you start looking at potential houses. Getting preapproved and working with a reliable real estate agent will make the home buying process much quicker and easier.
Once you get preapproved, don’t settle for the first offer you get. Make sure you shop around and compare pricing among different lenders. This will help you secure the lowest interest rate and could save you thousands of dollars over the life of the loan.
