With the Dallas Real Estate market hotter than a Texas summer, many people are jumping on the band wagon of buying a house. Don’t get me wrong, I thing everyone should own at least one house, if possible even more. However, before you start shopping, there are a few things to consider. Many buyers get too eager to find a house, then often forget about one very important thing, how are they going to pay for the house?
Here is a list of 4 numbers to know before shopping for a house.
- Having a great credit score is quite important, even if you are not buying a house, or applying for a loan. But when it comes to getting a mortgage to purchase a house, this is where most lenders will start. In today’s market, there are a number of programs offered by lenders, some guaranteed or insured by government. Ideally you will need to get your score above 620 to get the best option. Some lenders will work with as low as 550.
Lenders will often have their own way to calculate your score, so shopping for a lender may be a good idea. Just be careful not to over do it with too many inquiries, as it may lower your score.
Debt to Income
- While a good credit score is important, many buyers forget about their other obligations. Even with the best credit score, if your debt is too high, the lender may still not approve the loan. The lender wants to make sure that you will be able to add another installment payment to your monthly obligation, and keep it up. Debt To Income ratio is a percentage number you get when you divide your monthly payments with your monthly income.
Front End Ratio: Add up Principal, Interest, Taxes and Insurance (PITI), some lenders may also include HOA dues; then divide with your monthly income. Generally you want this number to be below 28%. Some loans will qualify with a little higher percentage.
Back End Ratio: Take PITI and add all other debt payments you may have, Credit Card, Student Loans, car payment… then divide with your monthly income. This number should be below 45%. On an FHA loan, below 56%.
- The Down Payment will be one of the first things to consider to determine the type of a loan you will qualify for. Some of the more popular loans are FHA, VA, USDA and Conventional.
There are several options when considering a loan, one thing is constant. The lower the down payment – the higher the risk. Every lender will consider this when reviewing your application. While there are some loans with 0% down, these usually require some sort of mortgage insurance and often a higher interest rate.
- Having a great credit score, low debt to income ratio and high down payment, you may still want to reconsider getting a loan. Why? Not having any assets. While lenders will not check on your bank account, unless you are buying a second or a third home, you may sill want to keep a little cushion. It is always a good practice to have a financial cushion of 3-6 months savings.
Whatever you do, the best thing is to contact a lender before you start shopping. This will help you set a realistic goal and avoid surprises and/or disappointments.
Oh yea, before you get unhinged on me about being a cash buyer, reality is, the majority of us will need a loan to buy a house. However, the truth is that a number of buyers that could pay cash will often get a mortgage to purchase a house. It’s called leverage, and it is a good thing.
Got another question?
By Melissa Dittmann Tracey, REALTOR® Magazine Supersized tiles are making over more floors, and this may be welcome news to many homeowners. Large format tiles means less grout to clean. The large tile trend may be partially motivated out of function, not just aesthetics. More homeowners are experimenting with larger tile sizes, whether with porcelain, […]read more
Here is some insight on how Americans can invest their tax return and how first-time home buyers may look to invest long term. One of the major hurdles for potential home buyers is the downpayment. With a sizable tax refund, the average American would have a sizeable or partial downpayment depending on which region or […]read more
By Patti Stern, PJ & Co. Staging and Interior Decorating The new year and the upcoming spring season brings with it a fresh outlook and new beginnings. What will prospective home buyers be thinking about while searching for their new “happy place”? For sellers preparing their homes to sell this spring, that means engaging buyers […]read more
In the spirit of President’s Day we can use data from the 2017 Profile of Home Buyers and Sellers to see how the typical home differs from the White House. Typical Home Purchased in the U.S. 85% of buyers purchased a previously owned home, with 83% of buyers choosing a detached single-family home. Looking by first-time and […]read more