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.