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Money matters: First-time home buyer basics

Congratulations! You’ve finally decided to build or buy a home. As probably the biggest purchase you will make in your lifetime, navigating the steps to finance the construction or purchase of your home can be a daunting experience. Like most big-ticket consumer purchases, knowledge is power.

If you take the time to do your research and shop carefully, you will have a successful home financing experience.

When it comes to either buying or building a home, you need to decide how much you can or should spend and which type of mortgage will work best for you. I decided to check with several BIA members that specialize in lending for a current update. Before you step into a sales office or model home, here are some steps to ensure you are in the best possible financial situation to buy or build a new home.

Determine your monthly payment

The first step is to figure out what you can comfortably pay every month. Make a list of all your monthly expenses including loan payments, utilities, insurance, credit cards and don’t forget food, clothing and entertainment expenditures.

Your estimated monthly payment should not only include your mortgage but also other factors such as property taxes, home insurance, loan terms (interest rate and number of years to pay off a mortgage) and home owners association fees (if applicable).

To figure out the total cost, there are many mortgage calculators available online to help you determine your monthly payment based on your loan amount and current interest rates and private mortgage insurance (PMI, if required).

Pay down your debts

As you begin preparing your finances to apply for a mortgage loan, you might see the term “debt-to-income ratio” (DTI). Your DTI compares how much you owe each month to how much you earn and that is expressed as a percentage.

This percentage helps lenders gauge how well you manage your monthly obligations and if you can afford to repay a loan. In general, the lower your DTI, the more likely you are to qualify for a mortgage loan.

Connect with a lender

 After you have completed all of your research, visit a lender and learn more about what loans would be available to you. Then get pre-approved for the loan that best suits your needs.

This will tell you how much money the lender is willing to loan you and you will know in what price range you should be shopping. In a hot resale housing market, pre-approval enables you to quickly make an offer when you find a home and it is attractive to sellers who are considering multiple offers. It also shows builders that you are a legitimate potential customer.

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