Before you can even begin with a home purchase, there are certain things you need to obtain. This is especially so if you’re going to apply for a mortgage. These loans can be complex and may have a long list of requirements. Below, we will break down all the essentials you’ll need to purchase a home.
Real Estate Agent
Unless you’ve bought plenty of houses before, the process of buying a home isn’t something you can entirely do on your own, especially if you’re a first-time buyer. You’ll save a ton of time and money by hiring resident estate agents who can guide you through the procedure. A good real estate agent will do everything to make sure you get the best end of the deal.
Pre-Approval Letter
A pre-approval letter certifies that your lender has looked through your employment and income documents, as well as your credit report, and has qualified you for a mortgage. This document is necessary since sellers don’t often entertain offers from buyers who aren’t pre-approved for a mortgage and real estate agents will be less likely to even show you potential homes. To get pre-approved, you need to submit your asset verification, credit report, and income verification to a loan officer.
Credit Score
Although you’ll find certain mortgages that are less stringent about low credit scores, you’re still required to have a decent FICO score to qualify for them. Most lenders look closely at your mid-score when trying to ascertain your creditworthiness. It’s recommended that you have at least a 620 credit rating from the three major credit bureaus. A score lower than 58 means that you might need to boost your credit score first before you apply for a mortgage.
Debt-To-Income Ratio
Your 
debt-to-income ratio (DTI ratio) is what most lenders use to figure out how much you can afford for a house. Your DTI ratio is determined by adding up your monthly debt installments and dividing it by your total monthly salary. Most mortgages require you to have a ratio of at least 41% or lower to qualify for them. There are two kinds of DTI ratios: front-end DTI ratios don’t include your estimated monthly mortgage payments yet, while back-end ratios do.
Employment
To qualify for a mortgage, you’ll need to exhibit consistent employment, dependable income, and a steady paycheck. You’ll also need to have accumulated at least two years of employment with one company. A regular employee receiving a salary looks best on an application. Otherwise, you might be considered more of a liability if you’re a contract or freelance worker, and you may have to submit your last two years of tax returns averaged to determine your average annual income.
Extra Funds
Don’t be surprised at the many fees you’ll have to cover when applying for a mortgage. To avoid getting a rude awakening, you’ll need to have an appropriate amount of extra cash set aside to prepare you for these. Closing costs are generally 1% to 3% of the loan amount and could include attorney agent fees, appraisals, underwriting fees, credit reports, recording fees, and more.
The road to purchasing a new house might be a complicated one, but it’s worth it when you finally get the home of your dreams.
