When you are ready to own a property and take the leap to become a homeowner, it can both be one of the most exciting and scariest times of your life.
Owning property is one of the most common and preferred forms of investment, and although very fulfilling, buying a home can be an overwhelming experience. For this reason, we recommended you are equipped with the basics when you decide to take that step.
There are several factors that are necessary to qualify for a home. It is not always possible to have all the money needed to buy a home, and that’s when you need a mortgage. A mortgage is a legal agreement where money is borrowed at an interest in exchange for taking title of a property. Mortgages come with the condition that the conveyance of title becomes void upon payment of the debt. As such, one of the very first steps to take when you are considering buying a home is checking your finances, conduct extensive market research and speak to a realtor to understand the critical steps in the process towards home ownership. It is also essential to have an accurate account of your financial status when planning to be a homeowner. Knowing your finances helps you estimate what type and how much of a loan you qualify for.
Some Of The Basic Requirements You Need To Qualify For A Home Include:
Debt to income ratio is the measurement of your monthly debt payment compared to your monthly gross income—the lower your debt to income ratio, the better. A debt to income ratio of 43% is as high as a borrower can typically have; however, lenders generally seek ratios of no more than 36%. Having a low debt to income ratio makes you more eligible as a borrower.
Your credit score is your risk worthiness. Having a credit score between 580 to 739, according to the FICO (The Fair Isaac Corporation), is considered a good credit score. A good credit score makes you more appealing to a lender, particularly with private loans, because it tells lenders that your likelihood to replay the loan is high.
A reliable source of income can be in the form of salary from work, dividends from investments/partnerships, capital gain from the sale of investments, royalties from products/license, and self-employment income, among others. This is especially important in getting a home loan because most lenders want to be sure that you will be able to pay back your loan. Often proof of your income is required and can be provided in the form of bank statements, your last two years tax returns, or a month’s worth of pay stubs. These documents or any combination thereof gives a clearer picture of your financial standing.
For first-time homeowners, providing a history of your rent payments offers an overview of your payment patterns, which is a great predictor for how consistent or diligent you will be in making your mortgage payments.
A down payment is a percentage of the money you provide in buying the home. Not all mortgages require down payment; however, providing a down payment is more advantageous. Down payments can be made from your savings, inheritance, trust accounts, insurance payments, among others.
One of the most significant accomplishments for anyone is being able to buy a home, whether by financing it entirely on your own or by getting the right mortgage, it is an important decision. Thus you must take the necessary steps to prepare adequately.
Best of luck in your journey to home ownership!