How your finances matter when it comes to buying a home

Buying a home is quite a financial feat. It requires careful planning due diligence and making sure that it’s the right decision for you and your family. If you’re buying a home, you may to begin to prepare your finances…

To get a mortgage you must have a blend of cash, credit and income. You cannot be deficient in one area to offset another. For example, no mortgage company will grant you a loan if you don’t provide documentable income on paper that is clear and conspicuous to the naked eye. There must be income to offset an expense. Just like an accounting balance sheet you can’t have a monthly expense if there’s no way to offset the expense and you can’t generally offset an expense with monies in a bank meaning reserves as those monies are not categorized in the same way. Same with a credit score, you could have good income, but if your credit score is sub 580 and you’re looking to purchase or refinance a house it’s going to be arduously difficult if not impossible. You must have the credit score to demonstrate that you are responsible in making your payments in a timely manner.

Cash can support a lower loan amount and or more skin in the game which could also potentially offset credit score and income that is not to say the income can’t be non-existent or extremely low, but in order to play ball you must have enough income in relationship to the down payment. Generally speaking for $100,000 of borrowing power it’s about $600 a month of mortgage payment including total Piti (principal interest taxes and insurance) conversely the opposite holds true for $50,000 of borrowing power it’s about $300-$350 a month of payment depending on whether you’re looking at a government-backed loan like a conventional loan or a government-insured loan like an FHA loan. These are things to consider when looking to get qualified and ultimately become pre-approved to purchase a house.

How to support this going forward? Not everybody is ready to buy a house and not everybody should be a homeowner. A few things that can completely cripple your ability to purchase a house are not having enough income to support a desired housing payment and the other monthly expenses in your life. The other thing that can be problematic is those monthly expenses in your life; a car loan, student loan, credit card payments, installment loans these are all things that erode income which otherwise could be allocated towards a housing payment for the roof over your head. It usually will make more sense financially if you’re trying to get the equilibrium balance between your cash credit and income to take some cash that you otherwise would have used for the down payment and use that to pay off debt. If that money is your down payment money leaving you with no down payment perhaps paying off that debt will free up more of your income to start saving to better position yourself to purchase a house down the line when your income and finances otherwise permit. If you’re unsure about whether you qualify or what it takes to get qualified talk to a lender. Pick a lender who has the long-term picture in mind and who is not only interested in right here right now today. You want a lender who is willing to work with you over the course of time if there’s something in your financial profile that otherwise would inhibit you from being able to purchase a house as s sound financial decision.

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