Buying a home is most likely the largest financial investment you will make in your lifetime, but usually the benefits of homeownership outweigh the challenges. Making sure you have done your homework and are prepared for the purchase of a home is essential to making the process easier for you.
There are many questions that you may have throughout the process of buying a home. The most important things to understand is that “no question is a dumb question.” If you’re unsure of something when buying a home, ask!
Whether you are considering the purchase of your first home or trading up to the home your family frequently fantasizes about, there are three crucial questions you must know the answer to.
What is the minimum down payment required to purchase a home?
Home loan programs today have many different options to fit almost any budget. Low-down-payment loans, assistance programs or gifts can help home buyers clear the down payment hurdle.
Mortgage Lenders have often preferred the 20% down rule, but many options are available today, especially to first-time home buyers. Conventional Loans offer down payments as low as 3% with good credit. FHA Loans offer down payments as low as 3.5%. VA and USDA Loans offer 0% down payment options for those who qualify.
What is the Credit Score I need to qualify for a mortgage?
Credit Score is an important part when it comes to buying a home. The minimum credit score required will depend on what type of home loan you qualify for. There are programs available that you may qualify for with a credit score of 580. The higher your credit score is the more program options will be available to you.
What is your DTI Ratio?
Your DTI, or debt-to-income ratio, plays a major role in whether you are ready and able to qualify for a home mortgage. DTI is the percentage of your income that is going towards paying your monthly debt. You want your DTI to be as low as possible, not just for you to qualify for the best program but also to ensure you can pay your debts and still live comfortably.
Your lender will calculate your debt-to-income ratio by taking your monthly income and dividing it by your monthly debt obligations. Most lenders look for a ratio of 36% or less, though there are exceptions with certain programs that will allow a higher DTI ratio.
A survey conducted by Fannie Mae revealed startling information: most Americans don’t know the answer to these three crucially important questions. Bottom Line: If you are considering purchasing a home, make sure you are aware of all your options before moving forward.