Couple reviewing a home purchase agreementThe idea of buying a house is exciting enough for potential buyers to overlook what the process it entails. A home purchase, for the most part, is a financial venture, so it is important to prepare your finances first before hitting open houses. You need to know what you can afford to avoid overspending and financial problems later after closing.

Cost of Homeownership

Home loan companies in Utah note that other than determining what you can afford, you also need to know the costs of being a homeowner.

  • Having a sizeable down payment (at least 20%) is ideal to avoid the extra cost of private mortgage insurance (PMI).
  • Having some extra cash at hand is also necessary for closing costs, moving expenses, and others.
  • You shouldn’t forget putting money into an emergency fund for general maintenance and unexpected repairs.

Credit Rating and Interest Rates

Your credit score is one important factor in the application process. It can influence your eligibility to qualify, as well as the interest rates. A higher rating could help you save more money over the life of the loan. It tells the lender that you can make payments on time, which will help you qualify for lower rates and fees. You can still get a loan with a low score, but the rates may be higher.

The Role of Your Debts

Your debt-to-income (DTI) ratio is another important consideration in approving a mortgage. It refers to the percentage of your monthly income that goes towards your debts. You are likely to get a mortgage with a low DTI ratio.

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You can calculate this by dividing your monthly debts (including regular financial obligations like credit cards) by your gross monthly income. Ideally, your DTI should not go beyond 36%, but some lenders may still give you a loan even with a high DTI.

Before you start looking for houses, get a clear picture of your finances and get a mortgage pre-approval. Be sure not to look at houses that are way beyond your budget or what you can realistically afford.