Are you thinking about buying a home?

Purchasing a home

Spring is upon us and that means many people, maybe yourself included, will begin looking for a new home.  Are you ready? It’s one of the biggest purchases you will make in your adult life.  Understanding your financial position and how much you can afford before beginning the house hunting process can be very helpful.

Credit Report

Check your credit score before you begin the loan process. Federal law allows you to get a free copy of your credit report every 12 months from all three credit bureaus. Reviewing your credit report a few times throughout the year can help you catch identity theft and correct any credit reporting errors that can have a significant impact on your credit socre. For example: My friend had a similar first name and the same last name as her mother-in-law. Her mother-in-law’s negative credit history ended up on her credit report.  She was able to call each credit bureau and with their help (and many written letters) correct the mistakes. Unfortunately, it had a major negative impact on her credit report until the errors were removed. Luckily, she was in the habit of reviewing her credit report often and that allowed her to catch the error.

Be cautious of the many websites claiming to give you access to a free credit report.  This is the only government-authorized Web site where consumers can get their free annual credit report.

Credit Score

It’s important to understand how your credit score will affect the interest rate you are given on a loan and what your payment and down payment might be. If you have a credit score below 660-680 you may still get approved for a loan but your interest rate will be higher—which means your loan payment will be higher. You could still qualify for a FHA (Federal Housing Administration) Loan. The minimum credit score to receive approval for an FHA is 640. However, each lender could have their own credit score requirement and it could be higher than 640.

Debt to Income

Beyond looking at your credit score lenders will look at your debt-to-income ratio. This ratio will affect how much of a loan you will be approved for. Generally you’ll want your debt to income ratio to be at least 36 percent. New mortgage rules in affect say borrower’s debt-to-income ratio can’t exceed 43%, with few exceptions.

What is considered debt?

Any recurring monthly payments that show up on your credit report including car loans, student loans, mortgage, and credit card payments etc.

Mortgage Payment

When calculating how much of a monthly payment you can afford—remember to include the cost of monthly Private Mortgage Insurance (PMI) and Property Tax, Insurance and Home Owners Association dues. This will all add to your total monthly payment on your new home.

For more information on the home buying process and to begin the pre-qualification process visit https://www.watrust.com/homeloans.

---