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Reviewing Finances to Buy a Home

Purchasing a home is exciting but buyers can quickly become overwhelmed during the financial portion of the transaction. To cut down on stress and save time in the process, plan ahead. Start by asking yourself what you need out of a home. Would you like to live in the city with quick access to local favorites or in the suburbs away from the busy streets? Are you working from home and need an extra room/office? Do you want a yard so that you can go outside and relax or something with little to no lawn maintenance? Take a moment to evaluate and answer these questions to help narrow your search parameters.  

Besides knowing what type of house you are looking for, you will also want to know how much house you can afford. To get a generalized idea use the debt-to-income ratio calculator (DTI). For this metric, you will need to include all installment debts such as car loans, personal loans, student loans, credit card debt, mortgage loans, etc. In addition to the installment debts, you will add your regular payments and then divide the total by the gross monthly income. 

Why does this matter? The debt-to-income ratio is one of the direct factors on whether you’re a good candidate and can qualify for the mortgage you’re applying for. Mortgage approval chances improve the lower the DTI. 

While gathering this information go ahead and put aside your last 30 days of pay stubs, 2 months of bank statements, 2 years of tax returns, 2 years of W9 or 1099, 2 years of employment history, 2 years of residence history, Driver’s License, and Social Security card. This will save you time when you contact a mortgage professional for pre-approval.

Also, monitor your credit scores. You do not want to open/close lines of credit or make any major purchases. Having a credit score of about 640-680 is the sweet spot. You will get better interest rate options in that range but the higher the score the better. 

During the planning process decide how much you are willing to put towards a down payment. Setting a limit on how much money you would be willing to spend (even on top of the down payment), given the case of more people wanting to make offers to buy the same property, can help you not go over budget. Having all these numbers and details at hand can also give your realtor more insight and information on what properties could be the best fit for your needs. 

Using an online calculator or mortgage guides to get started on learning about home loans is helpful in becoming informed but make sure you contact a Loan Professional when you are ready to start the process. A Loan Originator can help analyze the state of your finances before going house shopping and save you time by getting you pre-approved. Consider Motto Mortgage Borrowers First when it comes to home financing. They work directly with wholesale lenders to offer homebuyers competitive rates. It is also Veteran Owned and Operated. 

Guest Article by Cristina Bailey at Money.com

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