What you need to know before financing your dream home
Many consumers dream of buying their dream home. If you want to buy a house, it’s not cheap. Global house prices have risen over the past decade. Knight Frank’s Global House Price Index shows that average prices have increased by 7.3 percent over the past 12 months. While the price increase may seem overwhelming, financing your dream home remains possible. Finances will be a major factor in whether or not you can afford your dream home, regardless of whether you’re a first-time buyer or an existing homeowner. There are many ways to prepare yourself to finance your dream house. You can even start today.
Estimate Your Budget Clearly
Knowing your budget before buying a house is essential. A mortgage calculator can be used to calculate the amount of house you can afford. A strict household budget will help you determine how much money you can allocate to mortgage payments every month. Do not forget to include the extra costs associated with buying your dream home, such as closing costs, moving expenses, and administrative costs for construction (if you decide to build it).
A home deposit is another issue. Home finance options such as conventional loans may require as little as a 3 percent deposit. Veterans may qualify for VA-backed loans that require no down payment. You can also seek advice from a mortgage adviser if you need more information. A general rule of thumb is that the mortgage you can afford should be between 2 and 2.5 times your gross monthly income.
Maintain Your credit history.
Credit history has a significant impact on the cost of your dream home. It can influence the interest rates, payment terms, and mortgage lenders that you are offered. Experts recommend that homebuyers should aim to have a credit score of 760 or higher if they wish to get the best mortgage rates. Your credit score will determine how much you save in interest and monthly payments. The Mortgage Expert says that if your credit history is blemished, you can still get a loan to suit your needs and credit score, or you can improve it to qualify for better financing.
If you have a credit score of 650, you might still be able to meet the lending requirements set by some lenders. However, it will also result in an average mortgage rate of 3.614 percent (based on a 30-year mortgage application for $250,000 for a lender who has a credit score between 640-659). The FICO calculator, using the information provided, calculates that the average interest paid is $159 889. Someone with a score between 700-759 would pay $119,470 or $113 per month less in interest. Keep up with payments to keep your score high and improve. You can also access your credit report regularly to see any changes. Any one of the three national credit agencies will provide a free credit monitoring report annually, and it can be requested on AnnualCreditReport.com.
Create A Plan to Boost or Stabilize Your Income
You can increase your borrowing capacity before you apply for a home loan or mortgage by either reducing your expenses, paying down your debts, or improving your income. Asking your boss to increase your salary is one way to achieve this. You can also look for other ways to increase your income, such as starting your own side business or getting a new job. Your debt-to-income ratio will be better if you have a higher income. This is an important metric for lenders when they decide how much money to lend.
Remember an emergency fund when budgeting. The cost of buying or building your dream house can be high, with many additional costs. By planning and preparing your finances, you will be better prepared for anything.