Home Buying Power Explained

By Morgan Saylor

Want to know the secret to home buying power? Well, there’s no secret. Simply sitting down with your Stockton Mortgage Banker to get prequalified for a loan is the first step to homeownership – but knowing these factors give you the power to unlock your home buying strength! (But if you’re into secrets, here’s one: there are four of them!).

  1. Credit Score – Your credit score is important when setting a home buying goal. Your credit score helps lenders determine your ability to repay a debt by measuring a few factors, among them your payment history, amount owed, length of credit history, credit mix, and new credit.
  1. Down payment – While having cash in hand to put down on a home is a great thing to have, many buyers these days simply don’t, and that’s okay. Having a 20% down payment eliminates the need for Private Mortgage Insurance (PMI) and can help you get a lower interest rate, however, if 20% down isn’t an option for you, many programs exist that can assist qualified buyers in lower down payments or with down payment assistance. Just ask your Stockton Mortgage Banker.
  1. Debt-to-income (DTI) – Your mortgage banker has to make sure you can repay your home loan while taking into consideration your other debts as well. To do this, they’ll look at your front-end ratio (your house payment, insurance, taxes, insurance, interest, and if applicable, PMI) divided by your income, and this should ideally be at or below 28%.

Your back-end ratio will then be calculated, made up of your existing debt, which consists of what you already owe including student loans, auto loans, credit card payments, or anything that would show up on a credit report. This should be at or below 36%.

  1. Assets – Lenders also want to know about your assets – that is, checking, savings, or other documentable investments you may have that show you’re prepared for any issues that might arise.

Knowing what gives you the most buying power before you go in to get prequalified can help you prepare in planning for your financial future. For more information, check out our First Time Homebuyers Guide!


Tags: Home Buyer, home buyers, DTI, home buying, debt to income ratio, credit score, assets