Renters should review their finances when preparing to buy a home. There is a big difference from renting a property to owning a property. It doesn’t have to be scary as long as you go into the situation prepared and educated. That’s why we want you to see 5 questions you should answer before you buy a home.
What is your annual gross income?
There are a couple of ways to get an accurate answer to this question. If you’re paid by the hour and work full time, take your hourly wage and multiply it by 2080, then divide that answer by 12. When you’re salaried, take your annual salary and divide it by 12. When getting paid every other week you can take your gross pay and multiply it by 26 and divide the answer by 12. And, if you get paid two times per month you can multiply your gross pay by 24 and divide that by 12. For self employed borrowers it can be more complicated. You’ll want to talk to a qualified mortgage professional to do a self employed income analysis.
How much do you spend each month?
It’s a fantastic idea to know exactly how much you spend on your day to day living expenses to help you determine how much home you can afford. Here’s a quick way to check out your numbers. Only look at monthly debts that would show up on your credit report. Include things like cell bills, car payments and credit card bills. When you take your minimum monthly payments due on all accounts and add it to your proposed new home monthly payment you’ll be able to get your proposed debt to income ratio. It looks like this debt divided by gross monthly income equals debt to income ratio. Example $2,000 monthly debt / $4,000 gross monthly income = 50% debt to income ratio. Talk to your mortgage professional about what kind of debt to income ratio you’ll need to qualify.
What is your credit score?
Your credit score can be one of the key factors that lenders use when looking at getting ready to buy. There are different score thresholds for different mortgage programs. Typically, you’ll need to be at 620 or above to qualify. There are programs that can allow for lower scores, but you will need to have other compensating factors. If your score is too low, your mortgage professional has tools available that can help guide you to raising your score quickly and ethically. There may be simple fixes to raise your score, review your credit report with a mortgage professional.
How much have you saved for down payment and other costs?
There are options for low and even no down payment purchases. Talk to your mortgage professional to see what options would work best for you in your situation. Appraisal, Inspection and other closing costs are other closing fee’s to consider when setting up your budget. Sometimes you can negotiate for the seller to pay some of the closing costs, but again it’s best to work with your mortgage lender about how to structure that into the deal.
What is your financial situation?
Unexpected repair bills may arise, make sure you have a reserve fund set up. A new hot water heater or kitchen appliance can be costly to repair or replace.
Bamboo Mortgage Service can help you with any questions you might have.