How to Afford a House
According to Zillow, the typical home price in the United States in June of 2021 was $293,300, and the company expects prices will only go higher in the coming months. In fact, it’s predicting an increase of 13.2 percent in the next year. Since few homebuyers will be able to purchase a home with cash, determining how to afford a house often means learning how to secure a home loan. What can you do to set the stage for success?
Learn About Home Loans and More
There’s a lot to think about when you’re buying a home. Take some time to educate yourself about the many topics that you’re like to encounter along the way. You may choose to do your own research. What if you prefer a structured curriculum? As Forbes reports, a homebuyer education course can be a handy way to get the information that you need in a relatively quick and convenient format. While you should always choose a class that is certified by the U.S. Department of Housing and Urban Development, these classes come in all shapes and sizes. You can find everything from in-person group classes that last a few hours to self-paced online classes to one-on-one sessions that come with ongoing counseling. Whatever form the classes take, they typically cover the following topics:
- The pros and cons of homeownership
- How to choose a lender
- How to apply for a mortgage
- Budgeting advice
- Tips for using credit wisely
- How to plan for maintenance and other costs
Be a Good Loan Candidate
Knowing how to use a loan wisely is a good start. Being a good loan candidate is vital if you hope to persuade a lender to approve you for one. As The Ascent indicates, mortgage lenders will consider a number of factors:
- Your income and employment. A steady job that provides the level of income that you’ll need to repay the loan that you’re seeking is a necessity if you’re hoping to make a good impression on a lender.
- Your credit score. Your credit score is a three-digit summary of your ability to manage money. A higher score will typically increase your odds of not only getting approved for a loan but also being offered a lower interest rate. That’s important because a lower interest rate means it will cost you less to borrow money.
- Your down payment. If you plan to use a conventional loan, a down payment of at least 20 percent means that you’ll be able to avoid paying private mortgage insurance. However, many borrowers make do with down payments that are significantly smaller. In fact, some loan programs offer 100-percent financing, including VA loans and USDA loans.
- Your debt-to-income ratio. Lenders want to be repaid, so they are reluctant to offer loans to people who are already carrying a fair amount of debt. This is why lenders typically prefer to work with borrowers who have a low debt-to-income ratio.
Once you have everything in order, it is time to choose a lender and get preapproved. Why should you get preapproved before you start shopping? As The Balance explains, getting preapproved first offers several advantages, including a chance to have a financial professional tell you how much they’re willing to lend you. When you have that information, you have a better idea of how much you can really afford to spend when you go shopping for a home.