Welcome into this home with a nice bright foyer.

Financing Tips From the Experts

Your finances play a huge part when it comes to buying a home. Sometimes it can be an unexpected move, a company relocation can happen and you need to be ready. Here are several tips on getting your finances up to par.

1. Know What Lenders Look For

Knowing what a lender will want to see can really help you along the way. Be familiar with what they look for on a home loan application. Basically, they will want to make sure you are able to afford to pay back the loan and closing costs. Not only will you need money in your pocket, but will also need to be credit-worthy. The better your credit score, the better the interest rate. Lenders will want to know your income, employment history, recent banking activity, debt-to-income ratio, credit score, estimated down payment and assets.

2. Boost Your FICO Score

A FICO score is high on the list for lenders to look at when it comes to a loan. As mentioned before, the higher your credit score the better your interest rate. If you need to boost your score, make it a priority to pay your bills on-time, keep a diverse mix of credit, and keep the balances low.

3. Pay Down Your Debt

Your debt-to-income ratio (DTI) is also important because it can determine how much home you can afford. It can also play a factor in the terms and rates you will receive. This basically is the total monthly debt divided by your gross monthly income. The goal is to keep your DTI around 43% or below. Lenders would like to see you keep your DTI under 36%. Many say to keep it around 28% that will go towards housing.

4. Save For a Down Payment

The amount you put down for your down payment will depend on the type of mortgage you obtain. An FHA loan has the smallest down payment of 3.5% of the home’s purchase price. If you are dealing with a conventional loan, then you will want to try to put at least 20% down so you will not have to have private mortgage insurance (PMI). A USDA and VA loan will not even require a down payment.

5. Know How Much House You Can Afford

This can be tricky to determine how much you can afford. Remember that this is a big financial commitment for years to come. A good tool is to use an affordability calculator to see how much you can afford. Have your finances in order so you can have a good base for what you can afford in your home search.

When you start a home search, choose a local real estate agent who can help you with the home-buying process from start to finish. They can also recommend a lender who can help you with your mortgage needs.

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