If you’re a first-time homebuyer or looking to buy a new house, you might not know where to start. Many different things go into buying a home and this article will help break down the process of finding the perfect home loan for you. Below are some simple tips on how to find the perfect option for your needs.
Find out what you can afford
One of the primary things you need to do when looking to buy a home is figuring out how much you can spend. This is what a loan officer in Red Bluff suggests because it means that when it comes time to apply for your loan, there isn’t going to be any surprises with what the bank wants from you in terms of monthly payments or income requirements. Some people can determine this by simply taking their annual salary and dividing it by four to get a rough estimate of what they can afford each month.
Debt-to-Income Ratio
If you’re having trouble figuring out how much to spend, two other options may be able to help: first is determining your debt-to-income ratio, which can give you an idea as to whether or not it would even make sense financially for you if you buy at all. You can figure this out by simply adding up all of your monthly debt payments and dividing that number by your gross income which will give you a percentage. The ideal ratio is 41%, but anything below 36% is considered good to go with most lenders.
Monthly Income Percentage
The second option would be determining what percent of your monthly income should go towards housing. For this, you simply take your annual salary and divide it by 12 to get the total amount that goes into your bank account every month after taxes are taken out. You then want to multiply that number by 25%, which will give you a figure of what percentage of your income should be used for rent or mortgage expenses.
Once you have this number, it’s much easier to determine whether or not the home that you’re looking at is in your price range and will allow for a monthly payment that fits into your budget. It can also help when applying because if there isn’t going to be enough money left over each month after housing expenses are paid, the bank may turn you down for a loan.
Know your credit score
You should also take the time to check your credit score before applying for a loan. This can be done by checking the TransUnion website or simply calling to find out what it is. Your goal should be to keep this number above 700 because that shows that you can manage money responsibly and have paid back any debts in full when they’re due each month.
Of course, there are exceptions to this rule, but it’s usually best not to worry the bank with anything that could be perceived as a red flag. For example, if you’ve missed payments in the past and your score is only 680 at the moment because of it, simply wait until after you get approved for a loan before making arrangements to pay off those debts so the number will go up.
Explore different options and find the right lender
Some people assume that they have to work with a bank, but this isn’t always true – especially if your credit score is less than stellar or you don’t want to go through the hassle of getting approved for a mortgage. In these situations, it can be beneficial for you to research other options like peer-to-peer lending or credit unions.
Fixed-Rate and Adjustable-Rate Mortgage Loan
There are also different types of loans that exist, the first being a fixed-rate loan which usually lasts 30 years and has payments that remain the same during this period. The second option is an adjustable-rate mortgage (ARM) where monthly payments start lower but change over time. Both of these options are good for different reasons, so it would be best to talk with a lender about what might make the most sense based on your unique situation.
FHA Loan
Having this conversation is also beneficial when deciding whether or not you want to go with an FHA loan which gives government backing and may make it easier to qualify for a loan. This is good news for people with bad credit or no down payment and will allow them to buy homes more quickly than if they were going through traditional lenders who might not be able to help because of certain restrictions that exist when applying.
Bank Loan
Going the bank route can also have its benefits such as low-interest rates and a quick go-ahead to purchase the property of your choice. However, this is only good if you have excellent credit, which can be difficult for some people who just need a little help to get approved. Having an expert on your side that knows what lenders are looking for as well as how much assistance they’re willing to provide can make the loan process much easier.
Conclusion
Finding the right home can be difficult, especially if you’re not sure what to look for or how much money you’ll need to secure a mortgage that’s affordable and fits into your monthly budget no matter where you end up living. Being able to figure out how much you can spend for a house given your situation as well as determining what type of loan makes the most sense, is key to putting yourself in a position where you’ll be able to find the right house at an affordable price.
Once you have this information, it’s much easier for you to determine if your budget will allow for any homes that are within your criteria and how long it might take before being approved. It’s also beneficial to have an expert who knows the ins and outs of mortgages, so you’re not backtracking just because your loan isn’t going through. Buying a home is an exciting process, but it can also be stressful. There are many factors to consider when looking at the right house for you and your family. By following the steps outlined above, you’ll have a better idea of what you need to do before making that all-important decision on which one’s best for you!
