How much real estate can you
afford?
Getting an idea as to the price of the home you can afford is
an important first step in the home buying process. By
understanding the price range you can afford, you can look for
real estate in the appropriate areas and really find the ideal
home for you. By working with me, together we can determine
what the right home for you would be. Below you will find some
helpful information to help you get a better real estate price
point.Get a referral for a lender or mortgage
broker from a friend, relative, co-worker or real estate
broker. Provide the following information: gross monthly income and
total monthly payments (car payments, minimum monthly payments on
credit cards, child support payments and all payments you have to make
every month).
Get your "ratios." You or your lender can add all your debts
together and compare that number to your income to arrive at your
total debt-to-income ratio. Your percentage should be under 36 for the
best interest rate. The lower the number, the better
Give your lender authorization to pull your credit report.
The report should include a FICO (Fair, Isaac and Co.) score,
which is the credit scoring system most widely used by
lenders. A
credit score is a system of calculating the risk of
lending to you based on several factors, including how long
you've been at your present job, your occupation, how long
you've been at your present address, the ratio of your
balances to your available credit lines, whether you are a
home owner, the number of recent inquiries into your credit,
your age, the number of credit lines you have, the years you
have had a credit in the credit bureau database, and such
derogatory items as bankruptcy, collections against you,
foreclosures and slow pays.) A FICO score of 680 or better is
considered "A+" (excellent), and with good ratios and other
positive factors should get you the best interest rates
available.
Have a lender prepare a letter of prequalification for you.
The letter should state that your initial financial and credit
information has been reviewed and looks good, though it will
also state that the letter is not a guarantee of a loan.
Tips & Warnings
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Once you find a home and are ready to write an offer, have your
lender or mortgage broker write a letter of prequalification
only for the loan amount you're seeking with that offer. That
way the seller doesn't know if you can afford more.
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If you're self-employed or have been on the job for less than
two years, the lender may require additional information.
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You don't have to use the same lender that prequalified you.
Shop around and compare rates.
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Prequalified is not the same as preapproved. In a hot market,
you're going to want to go the extra step and get preapproved
for a home loan before you make an offer on a home.
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Lenders consider many factors in prequalifying you for a loan,
including credit, income and debt, type of property and amount
of down payment.
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