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A Few Things To Consider Before Buying A Home

Purchasing a home is considered part of the "American dream." And while it is a great privilege, it is also something that comes with a lot of responsibility, both before and after you close (finalize the purchase). If you have ever rented an apartment, you know that that is also an extensive process, with you having to find a place, save up a deposit, and undergo a tenant screening before you even pack the first box.

Buying a home is a similar, if not even more extensive process. While the process has a few similarities, there are quite a few differences. For example, instead of saving a deposit and the first month's rent, you will likely need a down payment, which is way more than the "first and last month's rent". Most lenders require at least three percent (3%) of the mortgage price. For example, a home selling for $150,000 requires minimum of $4,500 down. The percentage varies, and three percent normally applies to first time buyers or those with excellent credit, although exceptions apply. You also have to consider closing costs, although the seller may help you as well.

While you may have the deposit in hand, you also have to undergo a background check. Not the type of background check that looks into criminal history, but your credit. Here, the mortgage broker makes sure you have made past payments in a timely manner, and that you have a satisfactory score, a minimum of 620 or 650. If you do not have the proper credit score, obtain your credit report and look at the problem areas, then try to resolve them.

Your debt to income (DTI) ratio also comes into play here. This is the amount of revolving bills (debt) compared to what you make each month (income). For example, if you have $1,200 in debt and make $3,000, your DTI would be 40 percent (40%). Most lenders want a DTI of less than 33 percent (33%), but are possibly willing to make exceptions for factors like good credit. However, 40% would put you in jeopardy regardless of credit. Take a look at your expenses and income, and work on reducing the former and somehow increasing the latter. Paying off credit cards, car or student loans are all the best ways to get a reasonable DTI, and increase your chances of purchasing a home.

In the meantime, if you see a house you like, ask the seller if her or she is willing to rent the place out for a year or two, while you work on your credit or other issues. When you feel you are ready, you could always try and purchase the place down the line.

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