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Determine Your Budget
Posted by: Preston Hartman, Friday, June 20 at 10:30A.M.
1. Assess Your Financial Situation
Start by evaluating your income, savings, and monthly expenses. Calculate your debt-to-income ratio by dividing your total monthly debt payments by your gross monthly income. Lenders typically prefer a ratio below 36%.
2. Consider Your Down Payment
The size of your down payment affects your mortgage terms and monthly payments. A higher down payment can lower your interest rate and eliminate the need for private mortgage insurance (PMI). Aim for at least 20% if possible, but there are loan programs that require less.
3. Connect with a Lender
Scheduling a meeting with a local lender and having that inital conversation about where you currently stand financially in regards to getting pre-approved for a home mortgage is super beneficial. Lenders can give you a clear path forward to get to where you need to be at, or if you are already there - can start the next step of getting Pre-Approved!
4. Get Pre-Approved
While not required at this stage, getting pre-approved for a mortgage provides a clear picture of what you can afford. It also strengthens your position when making an offer on a home.
5. Plan for other Costs
Beyond the down payment and monthly mortgage, consider closing costs (typically 2-5% of the home price), moving expenses, and potential home repairs. Creating a detailed budget helps you prepare for these additional expenses.
Establish A Budget
Determining your budget is the crucial first step in the home buying process. Start by assessing your financial situation, including your income, savings, and monthly expenses, and calculate your debt-to-income ratio, aiming for a ratio below 36%. Consider your down payment, as a larger down payment can lower your interest rate and eliminate the need for private mortgage insurance (PMI). Use online mortgage calculators to estimate your monthly payments, including taxes and insurance, and get pre-approved for a mortgage to understand your purchasing power. Finally, plan for other costs like closing fees, moving expenses, and potential home repairs to ensure a comprehensive budget.
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