You don’t need to be a real estate tycoon to purchase a home, but you do need some key information about yourself and about the homebuying process. Here are things to know before buying a house.
1. Your credit score
This three-digit number can make or break your ability to get a mortgage and will affect what interest rates you can qualify for. Learning your credit score gives you an idea of where you’ll stand with lenders and whether it makes sense to work on strengthening your credit before applying for a mortgage. Higher credit scores help you qualify for lower interest rates.
2. How much home you can afford
It’s a good idea to keep housing expenses to no more than 28% of your monthly gross income. That means monthly payments for your mortgage, property taxes, and homeowners insurance should not exceed that threshold.
You’ll also want to consider your total debt-to-income ratio, or DTI, when determining how much house you can afford. Your DTI is the portion of your monthly gross income that goes toward monthly debt obligations — including housing costs — plus car, student loan, credit card and other debt payments. A good DTI for qualifying for a mortgage is 36% or below. Lower is better for being able to budget for things like emergency expenses, and for comparison shopping for a home loan.
3. Options for your down payment
The down payment is the upfront cash you pay toward the home purchase. Lenders offer a variety of mortgages with different down payment requirements. Many states and some counties and cities offer programs that combine mortgages with low interest rates with down payment assistance and help with closing costs. Explore your options to decide how much you’ll need to save for a down payment.
4. How much you can borrow
Before you start looking at homes, apply for mortgage preapproval with at least a few lenders. A preapproval letter is a lender’s offer to loan you a certain amount under specific terms. Compare the offers to get the lowest rates and fees.
5. Condition of your local real estate market
Browse listing websites and check market reports from your local real estate agencies to learn about home prices, demand for homes and inventory of properties for sale. This will give you an idea of what prices are for homes in your area and how much competition you’ll face when making offers to sellers.
6. Where you want to live
Every city has distinct neighborhoods with their own personalities. How you want to live will determine where you’d like to live. How far are you willing to commute to work? What types of amenities do you want nearby? Do you want a bustling neighborhood with restaurants within walking distance or a quiet suburban area?
7. Type of home you want
A detached, single-family home isn’t the only option. Condominiums, townhomes and manufactured homes can be more affordable.