Before you set out on your home buying journey, it’s important to thoroughly understand your finances so you know what kind of home you can afford to buy. According to Colorado Springs real estate expert Marianne Farrell, here are some of the numbers you should know:
The first thing you should do if you are interested in buying a home is check your credit score. Your credit score is calculated based on how much debt you have, how many credit cards you have open in your name, how long you have had these credit cards, and how often you make late payments.
Lenders will consider a number of factors when determining whether you qualify for a loan, and your credit score is one of them. A low credit score does not necessarily mean that you will not be approved for a loan, but it could affect your interest rates, which means you will have to pay more in the long run. Use this guide for help with understanding your credit score
Potential Down Payment
Another number you should know is the amount of money you are willing to put down on a home. Ideally, you should put 20% of the purchase price down on a home so you don’t have to pay private mortgage insurance, but it’s not required that you do so. There are many lenders that will approve you for a loan even if you do not have the ability to make a large down payment. However, you may have a higher interest rate if you make a smaller down payment.
Debt to Income Ratio
Lenders will take a deep dive into your finances to ensure that you will be able to repay the loan. One way they determine whether you are financially secure enough to pay your debts is by looking at your debt to income ratio. To calculate this number, simply divide your total monthly debt payments by your total monthly income. For example, if you have to pay $1100 in student loan and credit card debt every month, and you make $5000 a month, your debt to income ratio would be 0.22 or 22%. It’s recommended that you keep this number under 36% if you are trying to get approved for a mortgage.
Monthly Income and Expenses
It’s important that you take the time to calculate your monthly income and expenses and determining how much you want to spend every month on your home. Even if a bank tells you that you can afford to make $2,000 payments, you should still do the math yourself. After calculating your income and expenses, make sure that you are comfortable with the monthly payment amount before committing to a home.
After you have calculated these important numbers, contact
Farrell’s Sales for help finding your dream home. Marianne Farrell loves the Colorado Springs area for many reasons. She is your the go-to real estate agent for both homebuyers and sellers. Call 303-796-7000 today to get started on your search!