Details:According to a report by ET, buying a house is a big step in one’s life and with the real estate sector offering plenty of promise. While the prospect of a new home seems exciting, the steps towards it should be planned prudently. A well-thought move can save you the financial strain and ensure a comfortable life as a homeowner but do follow these tips:
Before the subprime mortgage crisis of 2007, getting a loan to buy a house was relatively easy. But as the economy slowed and home foreclosures rose, lenders began tightening their restrictions. Don’t be discouraged, though. Banks are still eager to help you buy the house of your dreams. All you have to do is get your financial ducks in a row.
Correct Errors on Your Credit Report
If you pay your bills on time but your credit score is lower than 660, it could be the result of an error on your credit report. Once each year, you can obtain a free copy of your credit report. You are allowed to receive one copy from each of the three reporting agencies: TransUnion, Equifax, and Experian. If any of the reports have false information, follow the instructions on the report to challenge it. Credit reporting agencies have 30 days to investigate and remove an error.
Calculate Your Debt-to-Income Ratio
Lenders look at a number of factors when deciding whether to approve a home loan, and debt-to-income (DTI) ratio is a big one. To determine yours, add up your monthly debt obligations, such as rent, child support, auto payments, and so on. (Do not include living costs, such as groceries, prescriptions, and utilities.) Divide that sum by your monthly gross income (before taxes). The resulting number (a percentage) is your DTI ratio. If it’s under 35 percent, great! If it’s over 35 percent but under 43 percent, you may still qualify for a loan at some banks. But if it’s over 43 percent, you’ll probably have to pay off some debt before qualifying for a loan.
Get Preapproved Up Front
If you know you’ll be house-hunting soon, you’ll save a lot of time and increase your chances of getting the house you want if you’re preapproved. This entails sitting down with your banker, who will check your credit score, figure your DTI, and analyze your overall financial situation in order to come up with the maximum amount of money that the bank is willing to lend you to purchase a house. Once you’re preapproved for a specific amount, you can start looking for homes in that price range.
Don’t Make Any Large Purchases
Even if you've been preapproved, you’re not home free just yet. During the house-buying process, your bank will do a final check of your credit and DTI before it formally approves a home loan. If you’ve made any large purchases since you were preapproved, such as a new car, your DTI ratio may no longer be acceptable. The general rule is to hold off on all major purchases until your home loan is finalized.