Picture yourself finding your dream home for sale after looking for months. It has a big yard for the kids to play in, the perfect room for a study, a spacious basement perfect for your storing needs and it’s in a great neighborhood. However, when you reach out to an agent or loan officer to get the process started you discover that the house is way over your budget, bringing you all the way back to square one.

With lots of things to consider when buying a home, how do you figure out what you can actually afford? Keep reading, and you’ll be all set to start your home-buying journey.

Reaching Out To A Loan Officer

Before you even begin looking for a home, consider talking to one of our loan officers from Ideal Mortgage as they help you through the process of applying for a loan. We can tell you about what’s going on in the market right now, figure out how much money you can borrow, and find the best loan for you that won’t cost too much.

So, you’re probably wondering how we should approach this. Well, we look at six main things to determine how much home you can afford.

Credit History

Your credit score is like a report card for how reliable you are at borrowing money. It’s made up of three numbers and shows if you’re risky or safe to lend to. When a loan officer checks your credit report, they’re seeing how you’ve dealt with things like loans, bankruptcies, credit cards, and bills.

To boost your credit score, make sure you handle your debts well, don’t owe too much on your credit card, pay bills on time, and refrain from applying for lots of new credit cards.

Income

When you apply for a loan, it’s important to show your loan officer that you earn enough supplemental income to cover your monthly mortgage payments. Since loans can last a long time, ranging from 15 to 30 years, you need to prove you have a steady income.

The loan officer will check your tax forms, pay stubs, and other documents to make sure you can keep up with your loan payments. If you’re currently self-employed, they’ll look at how much money you make after expenses, your tax records, and any existing contracts you have to figure out how much you earn.

Employment History

To make sure you have steady income, your loan officer will contact your current employer to verify if you work under that organization. They might also contact your previous employer if you haven’t been at your current job for very long. They’ll also look at where you’ve worked for the past two to three years, noting if you had a long period of unemployment or if you made very little money.

Existing Assets

Loan officers will also look into the other assets that you currently own. This is to make sure that if you lose your job, you have other things you can sell or use to keep making your monthly payment. These things could be money in your savings, a retirement fund, a house you own, or stocks you’ve invested in.

Debt

Since a home loan is a large loan, it’s expected that the loan officer will look into other existing debts that you may have. Things like car loans, student loans, or credit card debts can affect how much money you have left to pay for your house each month. The loan officer will closely check how well you’ve been paying off those debts compared to how much you earn. This helps them figure out your debt-to-income ratio, which shows what portion of your monthly income goes towards paying off debts. This ratio helps the lender see how much you can afford to pay for your future home loan.

Down Payment

Lastly, the loan officer will want to know how much money you have saved up for the down payment. The amount you can put down affects how much you’ll pay each month.

Your loan officer will be able to take all of these factors listed above and help you decide which loan program fits you best.

Prepare For Your Home Buying Journey

 There are several complex details involved in the loan application process, and a loan officer from Ideal Mortgage will be the best resource to guide you through it. When budgeting for your future home purchase, consider other regular monthly payments you may have such as utilities, school tuition fees for your kids, healthcare, groceries, etc. You may be able to technically afford the monthly mortgage payments but possibly come up short once you add all of the monthly costs together.

For the best chance at making wise financial choices about your home purchase, connect with one of our loan officers at Ideal Mortgage to answer all of your questions. Contact us today!