So, you’ve decided to purchase your first home! That’s so exciting! With financial awareness and a trusted loan expert by your side, your dream home doesn’t need to be a dream anymore – it can be real and within reach.
First things first, you have to determine your buying power, which shows lenders how much home you can afford to take on with your current financial situation. Below we’ll cover some of the most important factors that determine your buying power.
Start by determining how much available income you have in your pocket. Things like salary, wages, tips, investment income or commissionable income contribute to your annual income and can make your buying power stronger. Typically, lenders ask to view two years of income to ensure stability in the past and expected future.
Your Credit Score
Your credit score is determined by looking at all your credit files to see how credit-worthy you are. This includes your outstanding loans, credit cards and the payment history on each of them. Your actual score is determined by analyzing a combination of your payment history on each account, how much you owe, how long you’ve had credit, if you’ve had any recent credit inquiries, and the types of credit you have. Learn more how your credit score for mortgage is determined.
Your Monthly Debt
For the average American, things like credit card debt, car loans and student loans are a common factor in their finances. When you take your monthly debt and divide it by your gross monthly income, that creates your debt-to-income ratio, or DTI. Meaning you owe a set amount of money each month and have a pre-determined amount of time to pay it back. Lenders want to assure you’ll be able to pay your mortgage in addition to any debts currently in your name.
Your Down Payment
As a general rule, the more money you have for a down payment, the better home and better mortgage you’ll be eligible for. For most homebuyers, down payments are normally 20% of a home’s value, but that doesn’t always have to be the case. If you’re looking to provide a lower percentage of a home’s value, PrimeLending offers down payment assistance* programs to those who qualify.
Understanding how these numbers affect your homebuying journey is important to any new homeowner. Are you ready to make the move? A PrimeLending loan officer can help you navigate the loan process. Connect with a loan officer to learn more about your homebuying power.
*Certain restrictions apply. Not available in all areas. Please contact your PrimeLending loan officer for more details.