Evaluating Your Financial Situation Before Buying a HouseOne of the most complicated and stressful aspects of purchasing a home for sale in Winter Garden FL can be understanding and getting qualified for a mortgage. From collecting W2s and pay stubs, to comparing loan programs and necessary savings amounts, the financial aspect of home ownership can sound like a foreign language to many buyers. Let's take a look at some ways to evaluate your financial situation to see if buying a home is right for you. 

Credit Score

For a mortgage lender, a credit score is like a rating of financial trustworthiness. It gives them an idea of how much risk they are taking by agreeing to loan you money. If your credit score is low, their risk is high and if your credit score is high their risk is low. While many lenders will still take on clients with low credit scores, they will mitigate their risk by charging higher interest rates or by requiring a higher down payment. Ensuring your credit score is above 720 will put you in the best position to buy with the most beneficial interest rates and down payment options. 

Debt-to-Income Ratio

Similar to how they look at a credit score, mortgage lenders use debt-to-income ratio or DTI to get a feel for if you can afford to purchase a home. Calculating DTI is simple, just take all of your monthly debts including your potential mortgage payment and divide that number by your gross monthly income. The lower your DTI the more likely you will be approved for a mortgage. While lenders will often approve borrowers with a DTI of up to 43% it's best to keep your DTI below 36% to put yourself in the best financial position. 

Down Payment

A down payment is the amount of money you put down out of pocket toward the purchase of your new home. Different mortgage products will require different down payment minimums. For instance, a VA loan which is available to military veterans, has a 0% down payment minimum, while a conventional loan will typically be closer to 20%. These down payment percentages are calculated based on the sales price of the property and can fluctuate depending upon other financial factors such as your credit score. 

Closing Costs

Closing costs has become a catchall term for taxes, fees, and other related charges associated with the transfer of real estate. These fees vary from property to property but are often in the range of 2-5% of the purchase price of the home. Make sure to plan ahead for these fees as they will have to be paid before or at the time of closing and must be accounted for in the home buying budget. 

Mortgage Payment Budget

While less scientific, knowing what you are willing to pay for your monthly mortgage is an important piece of the puzzle going into your search for homes for sale in Winter Garden FL. For some, keeping their mortgage payment the same as their current rent is important, while others will allow for a monthly increase in housing if they know it is going towards ownership and long term equity. Whatever your feelings on the matter, sticking to a budget that you are comfortable with going into the process will ensure you are happy and not financially burdened by home ownership. 

Running The Number & Mortgage Calculators

While it may be tempting to plug your information into an online mortgage calculator to get an estimate on what you can afford, these calculators can struggle to account for the complexity of your specific situation and should be taken with a grain of salt. Only a true mortgage professional can accurately evaluate your financial standing and help you determine if homeownership is right for you and what a responsible mortgage budget should be. If you don't know where to begin, or are curious about if you can afford to own a home, give us a call and we would be glad to help you get the ball rolling!

While financial conversations can be difficult and often confusing, understanding where you are in the process is crucial to your long term goals. Taking the time to evaluate your current situation will help you better prepare for when it's time to buy a home. Who knows, a thorough evaluation could make you realize you are closer than you think to homeownership and all the benefits that it brings.

Posted by Florida Realty Marketplace on
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