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What Do I Need To Buy A House

    Lenders look at your credit scores, income, savings, debt, and documents to see if you qualify for the mortgage. The lender needs to verify your income is steady and sufficient to make the mortgage payments.

    Ideally, your new homes mortgage payment should not be more than 28% to 31% of your total monthly income. For instance, on a FHA loan, if you earn $4,000 a month, the total mortgage payments and monthly payments for your long-term debts cannot be more than $1,640. When you are making your mortgage payments each month, consider not just principal amounts and interest, but property taxes, homeowners insurance, homeowners association fees if applicable, and private mortgage insurance, if you are putting down less than 20%.

    Save For A Down Payment To avoid private mortgage insurance, or PMI, you will have to save at least 20 percent of your homes purchase price as a down payment. If you are going to have trouble making monthly mortgage payments if you have put down too much for a house, then it is best to wait until after the purchase of a house, or to put down less down up front. While putting down a smaller down payment on your house may help expedite the buying process, putting a larger down payment may help you to land a better interest rate, lower fees, and have more equity in your home. If you are looking to purchase a $200,000 home on a traditional loan, you will need to make about a $40,000 down payment.

    As far as a conventional loan goes, you probably will need a score of at least 620 and a down payment of at least 5 percent – and the higher your score, the better your purchasing power. Generally speaking, a credit score of 720 or higher will net you a favorable interest rate for a conventional loan, but the qualifying criteria depend on the particular lender. While a higher score will increase your purchasing power (you will be able to lock in a lower mortgage rate, potentially allowing you to borrow more), you may not need a higher credit score than you thought in order to purchase a house. If you are wondering what credit score is required to purchase a house in Texas, remember the minimum score differs by lender.

    Checking your credit score will help you decide on your financing options; lenders use it (among other factors) to establish loan prices and to determine whether or not you can afford your mortgage payments. If you are buying a new house on a mortgage, your lender will require an appraisal to make sure that the house is worth the money they are lending you.

    During the pre-approval process, lenders look at your income, assets, and credit reports to determine how much money you can borrow and at what interest rate. To be preapproved for a mortgage, most lenders ask that you complete an online mortgage application and submit facts about your financial situation. Working with a lender to get pre-approved for a mortgage is an important step to determine your budget accurately. Getting preapproved for a mortgage is useful when making a homebuying offer, and gives you a solid idea of what you can afford.

    You will have to get preapproved for a mortgage to figure out exactly how much money you need to purchase the home, but understanding what your monthly budget could look like if you took out a mortgage helps you determine whether or not you can afford the house in the real world. Setting up a realistic budget for your new home will help you determine what you can afford and what your total costs would be. Consider using a home affordability calculator to assess what you can afford in a house, as well as what your monthly payments could be.

    Next, you can gain clarity about your financial obligations by estimating your monthly mortgage payments, including interest and other costs. Once you think you have got a handle on your budget, it is time to speak with your mortgage lender to see what you really can afford, after they look at your financial situation a little closer and provide some insight into interest rates and how they would impact your potential payments. Your mortgage lender will calculate your debt-to-income ratio (DTI) to determine your qualification amount.

    Qualifying ratios generally range from 26-29 percent of your gross monthly income, depending on if you are going with a traditional or a government-backed loan, like an FHA or VA. For example, you would need $4,000 in gross monthly income to qualify for a mortgage loan that has payments of $1,040 to $1,160, including principal, interest, property taxes, and homeowners insurance. Credit requirements vary depending on the type of loan and the lender, but buyers may be able to qualify with as little as a 580.

    In riskier lending environments, lenders will increase the standards needed for mortgage lending, including minimum credit scores. Amy Tierce, senior loan officer at Radius Financial Group, notes that while the Federal Housing Administration (FHA) offers loan options for borrowers with a credit score of just 500, most lenders set their own requirements. Because lower credit scores pose risks for lenders, you can potentially qualify by offsetting risk through other means, such as adding a cosigner or providing a higher down payment. If you only qualify at the minimal requirements, you might want to work to raise your credit score before applying for a mortgage, since doing so may give you access to better rates.

    You should also avoid buying a house if you are likely to move shortly, do not have income to pay regular upkeep, or have debts to settle.

    A local realtor can help you evaluate homes you are looking at so that you are looking at one that is worth it, compared with the market. Also, your real estate agent may be able to refer you to other service providers, like title companies and home inspectors, that will assist in your Texas homebuying journey. Also, a knowledgeable real estate agent has probably seen all sorts of unusual scenarios when buying a house, so if you are in a unique situation–some less cash to put down, or a less-than-perfect credit score–they will know how best to move forward.

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