1. Can I afford monthly mortgage payments?

Evaluate your current financial circumstance by creating a budget of your income, debt and available cash flow. You may use a mortgage payment calculator as a mock example to get an idea of the anticipated payments. Depending on your credit, your interest rate will vary and this can be the difference of hundreds each month. Beyond the mortgage payment, you will likely pay mortgage insurance each month to compensate for not having a 20% down payment. Will you have sufficient funds to pay your bills and live comfortably.

2. Is my credit score satisfactory?

In order to acquire a home loan, a borrower must gain the trust of a lender. The underwriting process of the application period will inquire about the borrowers financial history and credit score. As you know, your credit score is a value given to express your trustworthyness in regards to debt repayment. A credit score above 720 should achieve the lowest competitive rates. There is a series of credit categories that will gaurantee a specific interest rate and determine if the you are eligible for the preferred loan program. If you do not qualify for a conventional mortgage loan, consider FHA financing or a VA home loan; these government-backed programs carry lenient underwriting and will subsidize lower rates and requirements to assist potential homebuyers.

3. Do I have enough cash in reserve?

Lenders will thoroughly inspect your financial assets and it is preferred to see cash in savings 60 days ahead of the application process. Having funds available will ensure the lender that you can cover the closing fees for processing the loan, while satisfying the minimum down payment. A larger down payment will help secure better loan terms in the contract. If you can manage to put down 20% of the total loan value, you can dismiss the required monthly mortgage insurance. Furthermore, cash reserves will help cover the mortgage payment upon unforseen and unfortunate circumstances, such as a loss of job or medical injury. Be sure you are prepared, as becoming delinquent on payments will ruin your credit and send your home in to foreclosure.

4. Am I prepared for any unexpected maintenance?

As with closing costs, many first time home-buyers fail to anticipate the sudden costs of maintenance and property taxes. If it can go wrong, it will and you should financially prepare for maintenance and repairs to your new home. It is estimated that homeowners will spend thousands in a 5 year span to upkeep and improve your home. Also be sure to budget for your property taxes, typically due twice a year in lump sum payments. Setting money aside each month or up front is essential.

5. Do I plan to live in the area for at least five years?

This question is usually a no brainer, however some desire relocating or upgrading. Plan ahead for additions to your family size, increase in salaries and satisfaction with the neighborhood. Purchasing a home mortgage is a longer term investment, hence the 15 to 30 year repayment plans. To regain your investment without taking a loss, you must make 5 years of payments, building equity in your home. If you cannot guarantee a 5 year stay, consider renting for now and continue saving for a later home purchase.