As one of the biggest purchases you will likely make in your lifetime, navigating the steps to finance your home can be a daunting experience.
Knowledge is power. If you take the time to do your research and shop carefully, you can have a successful home-buying experience.
But before you step into a sales office or model home, use these steps to ensure you are in the best possible financial situation.
Determine monthly payment
The first step is to figure out what you can comfortably pay every month. Make a list of all your monthly expenses including loan payments, utilities, insurance, credit cards, food, clothing and entertainment.
Your estimated monthly payment should not only include your mortgage but also other factors such as property taxes, home insurance, loan terms (how long you would like to pay off your mortgage) and homeowners association fees (if applicable).
To help you figure out the total cost, there are many mortgage calculators available online to help you determine your monthly payment based on current interest rates and down payment amounts.
Pay down your debts
As you begin preparing your finances for the purchase of a new home, you might see the term “debt-to-income ratio” (DTI). Your DTI compares how much you owe each month to how much you earn, which is expressed as a percentage.
This percentage helps lenders gauge how well you manage your monthly obligations and if you can afford to repay a loan.
In general, the lower your DTI, the more likely you are to qualify for a mortgage.
Access first-time resources
Attend a first-time home buying seminar or talk to a credit counselor who does not work for a lender. The U.S. Department of Housing and Urban Development offers free housing counseling and seminars.
Connect with a lender
After you have completed all of your research, visit a lender to learn what loans are available to you and get pre-approved. In a hot housing market, pre-approval enables you to quickly make an offer when you find a home within your budget, and it is attractive to sellers who are considering multiple offers.
For more information about first time home buying along with a list of qualified lenders, real estate agents and more, visit the Home Builders Association of Greater Chattanooga’s member directory at www.HBAGC.net.