What Do I Need to Have Before Looking at Homes for Sale?
You need to plan before looking at homes for sale to improve your chances of getting your dream home. Planning can also make navigating the home-buying process easier and save you time. You can start your planning by identifying home-buying requirements.
A budget can prevent you from spending more than you can afford on a new home. It can also help manage your options as you can eliminate the homes you can’t afford from your list of choices. Account for expected closing costs, down payment, and ideal mortgage payments in your budget. This way, you can know how much you will spend at each stage of the buying process. Working with a budget can save you from making drastic lifestyle changes once you own your home.
A Down Payment
Many lenders require clients to provide a down payment when making large purchases. A down payment is an amount you need to pay upfront in a real estate transaction. It’s a fraction of the purchase price that represents your equity in your new home as it’s not financed. Different lenders require borrowers to contribute varying down payment percentages — shop around to find the one you can afford.
Your credit score is one of the key elements lenders assess when determining whether to give you a loan, how much to offer you, and the most suitable interest rate to attach to your loan. You need a good credit score to improve your chances of securing a mortgage with an affordable interest rate. Ask for your credit report and assess it for discrepancies before looking at houses for sale.
Some lenders may be willing to give you a loan even with a low credit score. You’ll need to reduce their risk by paying a significant down payment or finding a co-signer with a good credit rating. Ask your chosen lender what you need to do to secure a loan. Only move forward with finding a home if their request is manageable.
Proof of Income
Before approving your mortgage, lenders may require you to show several months’ or years’ worth of consistent income. Your average income can determine the loan amount your lender offers — the higher your income, the higher your chances of securing a large loan.
You may need to show your pay stubs if you’re employed or your bank statements and tax returns if you’re self-employed. Your income shows your potential lender if you can pay your mortgage.
A Reasonable Debt-to-Income (DTI) Ratio
The DTI ratio is the percentage of your earnings that goes towards paying off your debts. A low DTI ratio can improve your chances of buying a home as lenders consider it when deciding whether to give mortgages.
You can reduce your DTI ratio by paying off some of your debts or finding alternative sources of income to increase your earnings. If you choose the latter, find something sustainable in the long term, as lenders may assess income sustainability.
Your lender can determine the cost of your mortgage, as different lenders offer loans at varying interest rates. Depending on your income and credit history, different lenders may also be willing to give you different loan amounts. Shop around until you find one who can offer you the loan amount you’re looking for and whose interest rate you can afford.
Start with your personal banker — they may be willing to give you the amount you need at a reasonable rate because you already do business with them. You can also consider lenders affiliated with real estate developers if you want to buy property directly from a builder.
A Mortgage Pre-approval Letter
A lender can provide a mortgage pre-approval letter detailing the loan amount they’re willing to offer you. Mortgage pre-approval can help determine the price range of houses you can afford. It can also show sellers you’re a serious buyer, improving your chances of getting your dream home before other potential buyers.
Mortgage pre-approval letters are viable for a limited timeframe — you may need to act fast or ask your lender to refresh your pre-approval if its expiration date is coming up.
Secure These Requirements Before Looking at Homes for Sale
Looking at homes for sale is one of the most enjoyable parts of the home-buying process. You can make the entire process hassle-free by equipping yourself with everything you need beforehand. Preparation can reduce your chances of missing out on your dream home when you find it.