Buyers Ed Test tips
You should know and understand the following points covered within the Getting Ready To Buy A Home section:
Prequalify for a mortgage
- The first step toward purchasing a home is determining how much you can afford to spend on a home.
- Determining home affordability requires prequalification.
- The prequalification process includes a review of your monthly debts, current interest rates, and a review of your monthly income.
- Social Security, child support, and unemployment compensation are all sources of income that may be considered in the Gross Monthly Income Calculation.
- Measurements called Housing Expense and Debt Ratios are based on estimated total monthly debt, income and housing expense and are used by lenders to figure out whether you can afford a mortgage.
- The “total debt ratio” compares your total monthly debt with your total monthly income.
- PITI, the acronym for the four components of the monthly mortgage payment, stands for Principal, Interest, Taxes and Insurance.
- By comparing how much you can afford per month with different loan terms and interest rates, you can determine a range of “safe” monthly payments.
Review your credit
- There are two types of credit: Open-end credit is ongoing with a limit on how much you may borrow (e.g., credit cards), so as you repay the balance due, credit is available to you again up to a certain limit. Closed-end credit is a one-time, limited basis loan (e.g., a car loan).
- Factors that help creditors determine whether you will repay a borrowed amount over a certain period of time include income, length of employment and amount of outstanding debts.
- Once you develop a poor credit history, it is possible to regain good credit and qualify for a mortgage loan.
- Just because you may have a lot of credit cards doesn’t necessarily mean that you will have a good credit history.
- Creditors review your credit report to help determine whether to grant you credit or not. The credit report may include any bankruptcies.
- It’s possible to repair poor credit history by making payments on time for at least a year, reducing outstanding debt faster by paying more than the minimum payment and not applying for more credit cards than you can financially manage.
Develop a budget
- Good budgeting shouldn’t hinder your enjoyment of life or force you to make financial sacrifices.
- Budgeting, a necessary part of analyzing income and expenses, includes discussing needs and wants of your family members and maintaining a Monthly Spending Planner.
- Creating a Monthly Spending Planner details your monthly income and expenses and the comparison between your income and expenses.
- Creating a budget is beneficial for successfully purchasing and maintaining homeownership, saving for your children’s college tuition, and improving your retirement.
- Disability payments, unemployment and child support are sources of income that would be listed on the Monthly Net Income section of your Monthly Spending Planner.
- Credit card payments should be included on the Expense section of your Monthly Spending Planner.
- If your Monthly Net Income is less than your anticipated After Home Purchase monthly expense total, you should attempt to reduce your monthly expenses.
- As a homeowner, it’s recommended to have up to six months’ living expenses in savings.
- Developing a good record-keeping system, exercising will power to prevent overspending and setting realistic goals are all essential for successful budgeting.
- A successful budgeting plan will help you financially protect your family from unforeseen events such as unemployment, death, etc.; understand how/where your money is being spent; and increase your savings.
