When you’re looking into buying a home, there are a lot of considerations to take into account. Not only will you want to find a house that will fit your family and your way of life, but you also need to be able to afford the mortgage payments as well as have enough cash for a down payment and all other upfront expenses. But before you can even begin thinking about these issues, you have to get your home loan. So to help make this process easier on you and your finances, here are three things to consider when getting a home loan.
Your Debt Ratio
Before you fall in love with a home, you have to know whether or not you’ll be able to afford that home. One way both you and your lender will now if a home is reasonable for you financially is to consider your monthly debt ratio. According to Elizabeth Weintraub, a contributor to TheBalance.com, your debt ratio is the amount of your monthly income that is going to be tied up in paying for your monthly bills, like your mortgage and other payments. Depending on the type of loan you’re getting and the way this ratio is calculated, the percentage that will be appropriate for you and your lender will vary. Generally, a satisfactory debt ratio will fall somewhere between 31 and 45 percent. If the price of your home would put you past this ratio, you likely won’t get approved for the home loan.
Your Work History
Qualifying for a home loan from a lender will generally come down to whether the lender thinks you’re a good debt risk or not. If the lender thinks you might have problems paying them back on a regular basis, they likely won’t agree to loan you the money. One way you can prove that you’re a good debt risk is through your work history. According to Teresa Mears, a contributor to U.S. News and World Report, if you’ve worked at the same company for a long period of time, this will be viewed more positively than if you have part-time employment or haven’t had a job in a while. While there are always exceptions to the rule, having a solid work history is generally a big plus in the eyes of a lender.
What To Put As a Down Payment
As a general rule, many people have heard that you should try to put down at least 20 percent on your home as a down payment. But according to Crissinda Ponder, a contributor to BankRate.com, this doesn’t always have to be the case. While it’s better for you in the long run if you can put more money down on your home, you can often get a home loan and get into your home with much less as a down payment. Speak to your lender to see what your options could be.
If you’ll be purchasing a home soon and are unsure about how to best prepare for a home loan, use the tips mentioned above to help you do just that.