After having been in the mortgage business for over 13 years, founding, and owning my wholesale mortgage firm the industry is still in my blood. It was the first professional career I had right out of college, so I can’t help but want to educate and assist borrowers in making the right decisions.
Borrowing money the right way can be a helpful thing, and some people will argue you should never borrow money when you don’t have to but I disagree. With mortgages rates as low as they are why not borrow vs use your own cash? Most of us can’t afford to pay cash for a house and that’s where a home loan comes in, but borrowing money is something that shouldn’t be taken lightly.
Here are some simple tips to help you understand the process of buying a home and being able to afford it:
- Don’t buy more than you can afford. Sounds simple right, and common sense, but all too often people bite off more than they can a chew and catch themselves in trouble. The best way to be safe is to calculate your take home pay THEN figure out what 30% of that is.. and that’s what your mortgage shouldn’t exceed. The lenders will let you go up to and sometimes over 40% DTI (debt to income ratio), but that doesn’t mean you should.
- Clean up your credit.. If you have small unpaid judgments or collections just get rid of them. Pay down your credit cards or other revolving debt down to 50% or LESS of the available credit line limit. New credit score rules & changes should help you achieve a higher score more easily.
- Make sure you pay your rent and/or your current mortgage payment on time. If you are trying to buy a house it’s extremely important your rent payments are paid as agreed. ALSO, that you keep verifiable records of you making these payments. The lender will want to verify ALL this or you won’t get a loan.
- The minimum amount of money you can put down (for now) is 3.5% for an FHA loan. Veterans can get 100% financing, but even still there are closing costs that will need to be paid regardless. Even vets have to usually come out of pocket for at least $500-$1000 even for no money down. ( Charleston SC VA Loans ).
- Savings AFTER you close is very very important. Banks want to make sure that you have at least 3 months worth of payments in the bank AFTER you close. Reason is; they want to make sure you can make payments IF you lost your job. While you are looking for another one.