Buying a home is one of the most significant investments in life. If you do not ensure proper preparations, you could end up making serious mistakes, and regretting them for the rest of your life. One of the critical factors to consider when buying a house is financing. If you do not plan your finances adequately, you may end up spending more than you can afford. In that regard, it is important you take time and plan the finances. Do you want to buy a home fast? Here are important tips on how you can plan your finances to buy a house. Keep reading to discover the secrets of financial planning when buying a house.
1. Evaluate Renting Versus Buying
Before you begin searching homes for sale, it is important you evaluate whether now is the right time to buy a home. Therefore, compare renting versus buying, based on the financial implication. In some cases, you may consider renting a house until you are ready to bear the financial responsibility that comes with purchasing a property.
Remember either of the options comes with a unique set of pros and cons. For instance, buying a home today means you are accumulating wealth because you can always recover the money and earn profits from the sale. On the other side, renting involves a smaller capital investment compared to how much you need to buy a home. However, you will never recover the money you pay as rent.
2. Check Your Credit Score
If you plan to buy a home fast, you may need to apply for home financing from a mortgage lender. One of the considerations that the mortgage lender makes is your credit score. Therefore, it makes sense if you check the credit score before you begin shopping for a credit facility.
Staying on top of your credit is always important. This is considering that if your credit score is okay, you can buy a home fast. However, if your credit score is not impressive, you may need to delay the process of purchasing a home.
Thus, if your credit score is below the expectation, it is time you consider the various options for repairing and building a credit score. Remember the earlier you begin the process of credit repair, the better.
3. Check The Debt To Income Ratio
Another important indicator any mortgage lender will verify to determine if you qualify for mortgage financing is the DTI ratio. Ideally, this is the representation of your credit in relation to your current income. Thus, if you have a high Debt to income ratio, it could hurt your credit application.
Most mortgage lenders consider a DTI ratio of less than 43%. This is because borrowers with a high DTI are likely to default the mortgage repayments. Therefore, if your DTI is greater than 43%, you may be disadvantaged when applying for the mortgage facility.
4. Calculate How Much You Can Afford
Now, it is time you calculate how much you can afford to put aside as the mortgage repayment. Ideally, you need to make sure you are not borrowing more than you can afford to repay. Therefore, sum up the monthly income, and the estimated expenses. When calculating the expenses, do not forget property taxes, home insurance, private mortgage insurance, and other related property maintenance costs.
Subtract the total expenses from the net income, to determine how much you have left to repay the mortgage. Try as much to stay within the affordability blanket to avoid defaulting on your mortgage. Remember that if you fail to repay the loan, the property could end up on the auctioneer’s list.
5. Save a Healthy Down Payment
If your goal is to buy a home fast, you need to raise the required downpayment, so that your mortgage application is processed by the lender. Therefore, start saving money so that you can clear the down payment comfortably. The down payment could vary depending on the mortgage type you want to apply. However, for a conventional home loan, the down payment is often 20%.
Remember the down payment amount reduces how much you need to borrow, to finance the home buying process. Thus, try saving as much money as you possibly can.
6. Seek Mortgage Preapproval
The mortgage preapproval is an important step to take. Therefore, you need to consult a mortgage lender and obtain the mortgage pre-approval letter. The letter provides you with the opportunity to discuss various loan options with your mortgage lender.
You can see mortgage preapproval from multiple lenders. In fact, the more options you have, the higher the likelihood of securing a cheaper mortgage. Therefore, prepare all the documents required by the mortgage lender, and apply for the mortgage pre-approval.
Planning your finances on time is one of the best things you can do. This is especially when you want to buy a home fast. You may hire an experienced real estate agent [Why Should You Hire a Real Estate Agent to Sell Your Property? Tips by a successful Real Estate Agent Martin Zialcita], to guide you through the steps above. An experienced real estate agent understands the market better and can help you to reach the right decisions when applying for a mortgage.