While you may be eager to start searching for your dream home right away, the first step in preparing to buy a home is understanding how much home you can afford. To figure this out, you should get prequalified or preapproved by a lender, who will tell you the maximum amount you can mortgage. This will help you start searching within your price range. Next, it's time to prep for your meeting with a lender. Make sure you know the answers to the following questions:
Do you have reported stable income?
Without a regular income, it is very difficult to get a loan of any kind. For a mortgage, it is important to be able to prove that you have a steady income by providing proof of income. This can be in the form of a paystub. The number of paystubs the lender would like to see can vary, but be sure you know how to access these documents so you can provide them. Also, if you are getting paid "off the books" or "under the table," you may have a difficult time getting a mortgage.
Who will be on the mortgage?
If you are searching for a home not just for yourself, it is important to understand whether just one of you or both of you will go on the mortgage. In some cases, one partner may have better credit or financial standing than the other, so it may be beneficial to have just that one person on the mortgage. On the other hand, combining two good credit scores and incomes can help increase the amount of the loan.
What does your current debt look like?
Take an assessment of what current debt you have and how much it takes away from your income monthly. The lender will look at this to get your debt-to-income ratio, which can determine the confidence the lender has in you as a borrower. If there is a debt you can easily pay off, then do it to free up more monthly income to put toward your future house and mortgage. It is also important to not take out any additional loans until after you close on your house, as this could change the amount of the mortgage you can get.
What is your monthly budget?
It is important to understand what your monthly budget will be when owning a home. While you may qualify for a certain dollar amount on a mortgage, the monthly payment may be more than you can really afford. That is, it would leave you cash poor. Remember that you want to buy a house but also maintain a lifestyle you are comfortable with. Have in mind a monthly payment amount that would achieve this, then determine what mortgage amount that will get you.
Also, it is important for negotiation purposes to know how much an extra $1,000 on the mortgage would add to your monthly payment.
If you're ready to start the mortgage preapproval process, reach out to me today and I will refer you to one of the lenders I typically work with.