Assess Your Real Buying Power
With some priorities and goals in mind while gathering your listings, now is a good time to get a real idea of what you can afford and the steps you can take to begin preparing your budget for a mortgage, property taxes, and potentially homeowners insurance and homeowners association dues. While lenders vary in leniency, most require good credit, a sustained pattern of saving money and paying your bills on time, and roughly a debt-to-income ratio of 40 percent (gross monthly income compared to minimum payments on recurring debt(s)).
How Much of a Mortgage Can I Afford?
First-time-home-buyers often confuse this question as being “What house can I afford to buy?” When really, the question is slightly gloomier: “What can I afford to maintain—even if things take a turn for the worst (e.g. lose a job, hospital bills)?” To get an idea of monthly payments you can afford, try our mortgage calculator. Give yourself a range from conservative to aggressive, in terms of how much you’re willing to spend, and weigh that against your list of potential homes.
What is My Credit Score?
Even if buying your first home seems years away, you can do a lot to improve your standing with lenders in the meantime. Focus on paying down your credit cards, paying your bills on time, and raising your credit score.
As a benchmark, below 620 is considered poor, 621-659 is fair, 660-699 is good, 700-759 is very good, and 760 and above is ridiculously good, and we’re jealous.
There are plenty of ways to check your credit score, some better than others. We’ve listed a few below, along with benefits and drawbacks.
- FICO Free Credit Estimator: This online quiz is surprisingly effective at predicting your score, though not entirely accurate, and nothing to be confident with. Just an easy way to ballpark your credit score.
- Ask a lender: If you’re ready to start the process of shopping for a home, and a home loan, why not just save some time by requesting your credit score by asking your lender during the pre-approval process? It’s free, but the lender is only required to supply your score, not your full report.
- Download your credit report: Annual Credit Report allows you to download your report for free and then fork over about $20 for your annual credit score. This report is pulled from all three credit reporting bureaus: TransUnion, Experian, and Equifax. Be careful though, you’re automatically enrolled in a $20-$40 per month plan that can be a pain to reverse.
- Pay for your FICO score: Free credit score from two of the three credit reporting companies: Equifax and TransUnion. Charges only occur (roughly $15-20 per month) when you opt to use their tools and services to help improve your score.