It’s not nearly as much fun as house hunting. But all your hunting is for naught if you aren’t ready to take out a loan.
Fully understanding your finances is critical to making an offer on a home. You will need to know if you are financially able to cover the mortgage, as well as whether you’re prepared to make any repairs to the house once you move in. (There’s always a window that needs replaced or a previously great appliance that craps out as soon as you need it.)
Are you wondering how much you can borrow? Once you have selected a lender, you will need to fill out a loan application and provide important information regarding your credit, debt, work history, down payment, and residential history. Here are four Cs that help determine the amount you will be qualified to borrow.
Capacity
Your capacity is your current and future ability to make your payments. A combination of several things, arguably the most important factor in your capacity is a steady household income. Your lender is essentially making a 30-year commitment with you, and they want to make sure they can count on you for that time. Show that you’re steady and trustworthy. Don’t switch jobs right before or while in the middle of applying for a mortgage.
Capital
Otherwise known as your cash reserves, your capital is the money, savings, and investments that you have that can be sold quickly for cash. It’s important to disclose the money you have available up front, as well as where it came from. But while you’re planning your home purchase, be sure to also budget for your closing costs and any anticipated (or emergency!) home repairs.
Collateral
The home, or the type of home, that you would like to purchase serves as your collateral. Unless you’re paying cash money for your home (and if so, congratulations!), you will need to borrow from a qualified lender. The property you’re borrowing against will be your collateral in the loan. The lender is unlikely to offer you any more than they think that home is worth, and they will use the collateral to enforce your payments on that loan.
Credit
At its core, your credit is your history of paying bills and other debts on time. But it’s also pertinent to remember that every time you apply for a credit card, car loan, or other line of credit, your credit score takes a small, short-lived hit. These dings may or may not cause your loan to be rejected outright. However, for some loan applicants, a few points on your credit score could make a big difference in your final interest rate, which affects your monthly payments for the next 30 years.
Find out How Much You can Borrow Today!
Many homebuyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be surprised at your ability to do so. Our free Beverly-Hanks Buyer’s Guide includes a loan documentation checklist you can use when preparing to meet with lenders.
The Beverly-Hanks Buyer’s Guide introduces you to proven strategies to your home buyer concerns, from planning for your home search to preparing for closing. But nothing can replace having a Beverly-Hanks agent by your side. If you would like more information about buying a home, our experts at Beverly-Hanks are here to help.
Contact us today to request a free Beverly-Hanks Buyer’s Guide and to speak with a professional Beverly-Hanks real estate agent about buying homes and land in Western North Carolina.
