First step in home buying? Chat with lender and get qualified
If you’ve purchased anything with credit or through a loan, you likely learned that you first must “qualify” for that loan or credit limit. Buying a home is no different. It’s just on a much larger scale. So, while it may be a little easier to qualify to buy a $25,000 vehicle, qualifying for a new $350,000 home is a little more in depth. For mortgages, there is even a “pre-qualification” step you can take.
What do you qualify for?
You’ve outgrown the apartment. Or, you are wanting a few new amenities that come with a different 🏠 compared to what you have now. However, it’s been a while since you did the math and don’t know what you qualify for. But you don’t want to talk to a lender because they may judge your financial choices and get all up in your personal business.
Well, not all lenders are this way. Some just really want to educate you about your best options. Homeownership can unlock a lot of other financial tools to help you build generational wealth.
So, let’s do the math – without all that scary, personal probing. There is no one set of rules to determine what you can qualify for and your personal circumstances will determine your numbers, but here’s a good primer.
Take your gross income (before tax income) and multiply by 45%. Then subtract your monthly debts, like car payment, credit card bills, etc. But don’t include your current housing payment in those debts. Remember, a new mortgage will be replacing those dollars. Presto, that’s your target monthly payment.
So, for example
➗ 12 months
$2500 (potential monthly mortgage 💰)
Lots of factors go into developing an actual budget, but this is a good starting point. And for every $50 in additional debt, you’d need an additional $100 of income. Let me know if you try this with your income and what answer you get.
What lenders wish buyers knew
There are two common topics lenders wish buyers knew.
Start Early – We wish buyers understood the importance of starting early. This isn’t like buying a car – there are a lot of details and rules to consider. The earlier you start the smoother things will go no matter what lender you work with.
Know your income – Not all income is created equal. Not all income counts toward the full loan amount you’re getting. But neither do debts. It’s important to know what is and is not included.
When you’re ready to buy find a lender you can trust, start early enough so they can do a thorough job of making sure the right income and debts are used.
What does it take to buy a $350k home?
Are you ready to start the 🏠 shopping experience, but not really sure what you can afford? Earlier this year, the median house price in the U.S. was over $400,000. So, you may be wondering just what does it take to qualify for the average home price of $400,000? Let’s look at an example of a $350,000 purchase price with a variety of factors. We do take into account a few assumptions like a 740 credit score and 45% debt-to-income ratio.
3% down payment
Rate: 5.875% (APR 5.938%)
PITI: $2,545 (1% tax, .35% HOA)
Annual income needed: $67,867
10% down payment
Annual income needed: $60,350
20% down payment
Annual income needed: $53,520
Nothing replaces a personal assessment from a loan officer, but let me know if you think these sound reasonable or want to see another scenario.
My team and I are always ready to help you determine your best loan options give your specific needs and finances. Reach out to us to learn more.