Buying a home is often the largest investment and purchase many people will make during their lifetimes. Therefore, it only stands to reason that when you are considering making your first home purchase you need to make sure your finances construction loans texas are in order first. Unfortunately, many first-time home buyers make the mistake of jumping in feet first and shopping around for a home before they check their finances. The result is often disappointment when they find they cannot afford the home they have fallen in love with.
The current market is one of the best in a long time for prospective home buyers. Around the country, home prices remain low and interest rates are still more than affordable. There is also a large inventory of homes to choose from. Even so, the meltdown of the housing market has caused many lenders to step back and as a result, mortgage loans are not as easy to get as they once were. This makes it even more important for prospective buyers to ensure their finances are in order before they begin looking for a home to buy.
The first and most important step should be to check your credit. Buyers must realize that while mortgage loans are still available, financing is typically restricted to consumers who have good credit. Your credit score can range from a low of 300 to a high of 850. The median credit score for consumers in the United States is around 725. If your score is below 680, you can usually expect to either pay higher interest rates or have your application for a mortgage denied altogether. If you check your credit score and find it is not high enough, give yourself a few months to work on improving it. Focus on paying your bills on time and also on paying down your debt. Also, if you notice any errors on your credit report, be diligent about having them corrected.
In the months leading up to your home purchase you also need to focus on saving up the money you will need for the out of pocket expenses associated with purchasing a home. In the best scenario you will need approximately 20% of the purchase price as a down payment. Of course, there are mortgage loans available that offer lower down payment options, but keep in mind that if your loan to value ratio is higher than 80% you will need to pay private mortgage insurance each month. In addition, you will also need additional funds to pay for closing costs.
Getting approved for a mortgage loan is not just about your credit score. Lenders check a variety of factors when considering whether to offer approval for a mortgage application or not. One of those factors is your debt to income ratio. Many mortgage loans have very specific guidelines regarding the maximum debt to income ratio you may have and still be able to be approved for a mortgage. Prior to shopping for a home, make sure you are away from all of your debts. If you see that your debts are on the high side, it is probably a good idea to work on paying down some of that debt before you make an application for a home loan.
You also need to start doing some research so you will be informed about the state of your local real estate market and also current interest rates. Spend some time finding out the average sales price for homes in your area. Also, research interest rates. Right now, interest rates are historically low. Remember that you’ll pay a higher interest rate if your credit score is low.
Finally, you need to begin looking at how much you can comfortably afford each month for housing expenses. Remember that housing expenses include not only your mortgage payment but also homeowner’s insurance, real estate taxes and maintenance. If you purchase a home that is part of a homeowner’s association, you will also have monthly dues for that as well. Most experts recommend keeping your total housing expenses at around 33% of your total income. Make sure you allow plenty of leeway in your budget so that you will still be able to afford your housing expenses even if something unexpected should occur in the future. Also, try to keep your total debt payments, including your housing payments, car payments, credit card payments and student loans at around 45% of your income.