6 Financial Prerequisites for Buying a House
Whether you’re in a buyer’s market or a seller’s market, once you find a house that feels like home, you’ll want to buy it as soon as possible. However, it’s not quite that simple. Many financial issues will determine whether you’ll be able to purchase the house, as well as the terms of your mortgage. Knowing this information in advance will help you make better decisions and will make your mortgage approval process go smoothly and quickly.
Financial Prerequisite #1: Have a Sufficient Down Payment
Your dream of home ownership can quickly get dashed if you can’t provide an adequate amount of money for your down payment.
“Lenders have tightened the requirements since the economic crisis in 2008,” says Karen R. Jenkins, a certified mortgage banker who’s the president and CEO of KRJ Consulting in Columbia, South Carolina. “As a result, prospective borrowers seeking to purchase a home must have some ‘skin in the game’ to qualify for a home,” Jenkins says most loan programs require a minimum 3.5% down payment.
You may have known people who purchased homes in the past without a down payment – or you may have even been one of those people. That’s a much less likely scenario today, as banks are trying to limit the risk of borrowers defaulting. “A borrower with skin in the game is less likely to default when the going gets tough,” says Stacey Alcorn, owner and Chief Happiness Officer at Boston-based LAER Realty Partners. For example, when real estate values go down, a borrower who has put their life savings into that property is more likely to hang on and ride out the storm, waiting for property values to rise again, Alcorn says. On the other hand, “a borrower who has put zero money down is likely to just walk away from the property and let the bank take it through foreclosure.”
Financial Prerequisite #2: Find an Affordable Interest Rate
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