The process of buying a home is as unique to you as the family and friends that will eventually fill that home. But how do you know you’re getting a good deal? The answer is relative, but there are steps your realtor and lender can guide you through to decide for yourself.
Your lender will require an appraisal to determine if you are getting the best deal. In a real estate transaction, the lender hires the appraiser. The appraiser’s task is to determine whether the property has sufficient value to secure a loan. An appraiser aims to develop an overall impression of a property and its market value. The appraiser walks through a property, looking at it through the eyes of a typical prospective buyer. The final step that goes into an appraisal is to compare the property with similar ones in the neighborhood that recently have sold. What did these get in the marketplace?
Another thing lenders look at when screening mortgage applicants is their debt-to-income ratio or DTI. DTI is a crucial metric that’s calculated by adding up all monthly debts, then dividing the sum by your gross monthly income. The higher your DTI ratio, the more risk you pose to a lender.
Some conventional loans allow a DTI ratio of up to 50 percent, but many lenders prefer a ratio of no more than 43 percent. If you previously had a high DTI ratio and have since paid off some high balances, you’ll be in a stronger position to get a mortgage.
You’ll also have more wiggle room in your budget to put money into an emergency fund for home repairs and other unexpected expenses.
Price is a crucial decision factor, but remember to let your expectations guide you as well. Your home should be a place that’s comfortable for you and a place for you to create your life. Both factors considered together will help you determine what is the best deal for you when buying a home.