Making Sure Your Finances Are Ready for a Home Loan
Buying a home is likely one of the largest purchases you will make in your lifetime, so it is not something you want to jump into without being prepared. Here's an overview of the crucial steps you'll need to take to ensure that you can manage your home loan successfully.
Save Up a Down Payment
In order to buy a home, you'll need to have a sizable down payment. The gold standard is to have at least 20 percent of the value of the home in order to get the best rates. It is possible to get a home loan with a lower down payment, but you're likely get stuck with a higher interest rate and may need to pay for private mortgage insurance (PMI) until you reach the 20-percent level. The more money you can put down up front, the more you'll save on interest over the life of the loan, so it is best to put down as much as you can afford.
Get a Home Loan Pre-Approval
Before you will be able to make an offer on a home, you'll need a pre-approval from a lender, indicating that you can, indeed, obtain a mortgage. Keep in mind, though, that the amount of the pre-approval represents how much money the lender is willing to give you, not necessarily how much you can actually afford.
Evaluate Your Budget
You'll need to look at the big picture of your finances to determine how much you can afford to spend on housing each month. A good rule of thumb is that your home shouldn't cost more than approximately one third of your monthly income, after taxes. However, the actual amount you can afford each month will also depend on your other regular expenses, such as car payments, groceries, utilities, credit card payments and more. Remember that your utility bills are likely to be higher in a house than they were if you previously lived in an apartment, so factor this into your analysis as well.
Build an Emergency Fund
If you are unable to pay your mortgage for whatever reason, you could be at risk of losing your home to foreclosure, so set aside a bit of money every month in case of emergency. Aim to have at least 6 months of living expenses covered. This will protect you in case you lose your job or have large, unexpected expenses. As tempting as it may be, try not to dip into this fund unless it is a true emergency so you will always have it ready when you need it most.
Save for Repairs
When you make the switch from renting to owning your home, you'll now be responsible for any upkeep and required repairs These tasks can often be quite costly, so don't skimp in this area. Many service providers do not yet accept credit cards, so you'll need to be prepared to write a check. Try to save as much as you can afford, as you never know when a repair issue might come up, and you'll want to be prepared.
Get Qualified Today at Coastal Pacific Lending Inc.
If you are looking to buy a home in Southern California, Coastal Pacific Lending Inc. can help you get the financing you need. We'll work with you to choose the most appropriate home loan to meet your needs and budget. We'll be happy to answer your questions about how the mortgage process works, so don't hesitate to get in touch with us. Your dream home could be yours sooner than you might think! Contact us at 888-214-8618.