If you are looking to buy a home in the near future, the first thing you will need is pre-approval from a lender! If you don’t already have a lender, your realtor can definitely give you a few recommendations for excellent lenders in the area. Once you’ve discussed the questions below with your lender they will be able to find your current credit score AND let you know exactly how much house you can afford.
- What is your annual income?
Go ahead and add together your salary, commissions, bonuses and investments you earn per year. Maybe grab a copy of last year’s tax return to use as a reference.
- How much debt are you in?
Tally up your credit cards, car loans, student loans and other monthly payments. This will help you and the lender determine your debt-to-income ratio. You don’t want a house to take up more than 25% of your monthly income… otherwise you may end up upside-down on the loan. If your debt ratio is HIGH, you may want a lower mortgage.
- What are you worth?
Lenders will want to see documentation for anything you own (cars, investment properties, etc.). Be ready to explain any large deposits or withdrawals made recently as well.
- How much do you want to put down?
Decide what amount (if any) you will put down on the house. As a homeowner, you will need a little cash set aside for unforeseen emergencies so don’t use everything you have for the down payment! If family members plan to help, the lender will probably want a letter from them.