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Buying a house is one of the biggest spending decisions, and certainly you can't do it in a hurry.  According to real estate experts, you should only buy a house after you have ensured the following 5 financial steps to buying a house which will keep your financial situation stable after paying off your mortgage.


1. House buying costs only account for 30% of your income

One of the biggest mistakes first-time home buyers make is buying a house that's worth more than they can afford.

5 financial steps to buying a house5 financial steps to buying a house / ph: pexels 

To avoid making that mistake, financial experts recommend not to spend more than 30% of your income on house buying cost.

This 30% of your income doesn't just cover mortgage payments.  It's the sum of all costs involved like mortgage interest, taxes, house insurance, maintenance fees, and any other renovations you want to make.

Another rule to determine when is the right time to buy a house is the “28/36 rule”.  Accordingly, you should not spend more than 28% of your total monthly income on house buying costs.  At the same time, you shouldn't spend more than 36% of your salary on debt including all mortgages, car loans, or other personal debt.

Many credit organisations also apply this rule to assess loan risk.  If your debt-to-income ratio exceeds the limit, you may have to pay higher interest rates or even fail to get a loan.

2. Have enough budget for closing costs

Closing costs is a general term for all the costs that a house buyer or seller must pay to complete a house purchase application.  This number is different for each person depending on the lender, the loan you choose, what you have paid before, your personal credit score, etc.

3. Have enough prepayment amount

You don't have to pay the full amount to own a house.  According to financial planners, the prepayment amount you need should be at least 20% of the house’s value.

However, the smaller the prepayment amount, the larger the mortgage amount, the more interest rate you will have to pay.  You must carefully consider your own financial situation, income level and job stability to ensure that in the future you will not get trouble with this home loan.

4. Your credit score is qualified

If you've decided to borrow money to buy a house, you need to know whether your credit score is qualified or not.

Generally, the higher your credit score, the lower your mortgage interest rate will be which means your monthly payment will be significantly reduced.

After checking your credit score, if the number does not meet the requirements of the lender, take more time to improve before deciding to buy a house.

5. Get pre-approval for a mortgage loan

If you do not have enough money to buy a house, before making the decision you need to know how much money you can borrow.

Some house seller even make your mortgage pre-approval a must.  That way, you can assure that you're ready to buy a house.

In this step, you will have to provide the creditor with some basic information about your income, assets, debts, etc. This is a not-so-intensive process.

Even if you get pre-approval from the lender, it does not guarantee that you will actually be approved for a loan when you officially buy a home.


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