If you are searching for a new house, there is a high probability that you have a list of factors to consider having in your ideal home. Factors like kitchen size, the condition of the room, the proximity to a train station, and the location have every chance to feature in it. But that is not good enough as there are many more crucial things.
Before considering all the factors you want in your ideal house, you must know the four essential things to find your perfect home. They are initial advance down payment, ability to repay the loan, mortgage lender pre-approval letter, and outstanding debt servicing obligations. Let us now delve into each of them in more detail.
Initial advance down payment
The upfront payment you make when you purchase a home is known as the advance payment. Popularly called down payment, it is the initial money you pay when you have decided to seal the deal on a house after you have liked it. The down payment differs according to many factors, including your monthly income.
Evernest, Nuvill and Mynd are Colorado Springs property management companies with various innovative programs, down payment options, varying interest rates, and other costs. You can explore these packages to decide how much to pay towards your down payment. The final amount you would pay as the initial down payment would depend on the chosen package.
Some other factors to consider are how much you need for maintenance, your crisis fund, the condition of the house, how long before you retire, and your overall debts. If you are a first-time buyer, explore all assistant options that can bring down your down payment. There are some benefits associated with being a first-time buyer.
Ability to repay the loan
They determine your ability to repay the loan using a three-digit numerical rating called credit score, which considers many of your financial factors, including your monthly income. The credit score measures your likelihood of defaulting on the loan payment and your ability to pay the loan on time.
The credit score can break your ability to get a mortgage and determine your interest rate for the house loan moving forward. Learning your credit score can give you an estimate of your standing with mortgage lenders. You may need to strengthen the rating if it is low. There are several ways to do that.
A higher credit score means you are unlikely to default on the mortgage payment, which means your risk level is low. The probability of you repaying the debts is high. In other words, the higher the score, the lower the risk. A higher score gives them more faith that you will meet your financial obligations. That means you are financially secure.
Mortgage lender pre-approval letter
Before searching for houses to buy, apply for a mortgage pre-approval letter with a few lenders. A pre-approval letter is a document from a potential lender offering to loan you a certain amount of money under specific terms. You might need a few of them from different lenders. Compare them to get the lowest interest rates and fees.
Before purchasing your home, the mortgage pre-approval process determines your borrowing power against the price of the house. To pre-approve, mortgage lenders look at your income, assets, and credit score. Then they decide how much to lend and at what rate.
The lender may also see how much debt you have outstanding. To complete the process, you must provide your bank statements and pay stubs. Even after receiving a letter, you still need to apply for a house mortgage loan before accessing the house. The pre-approval letter is only a tentative letter.
Outstanding debt servicing obligations
The rule of thumb is to keep your expenses less than 30% of your monthly income, which implies that the insurance, taxes, and mortgage should not exceed that threshold. The rating used to determine this score is called the debt-to-income score or DTI. Lenders use your DTI to assess your outstanding debt servicing obligations.
Improving your DTI score before applying for a house loan would be your best bet. It is the part of the income you set aside to service your debts. The debts include but are not limited to car expenses, housing costs, student loans, credit cards, and other costs. A lower DTI is always better. Lower the DTI, better your chances of getting preapproved.
The DTI score tells the lender how much of your monthly income goes towards paying all debts and loans, including household expenses. Divide your total debt payments by your income to get your DTI score. When applying for a mortgage, the lender usually requires you to attain a particular DTI score within your means. If you have a low DTI, that indicates to the lenders that you are less likely to default on your debts.