Using Common Sense before Applying for a Home Loan

Buying a home is one of the biggest investments that you will make in your life.  Additionally, buying your first home will be one of the happiest and most exciting moments of your life.  That being said, there are many things you should consider before you make your first home purchase.  The most important factor you should consider when attempting to buy a home is whether you can afford a home.

In an ideal world, lenders, real estate agents, and sellers would require that you get prequalified for a home loan.  Additionally, lenders would require proof of your financial situation and would qualify you based upon a realistic amount of affordability.  However, as you are well aware, this is not a perfect world.  Many lenders are concerned only about their payments and not about your ability to take on a loan as substantial as a home loan.  As such, you have to be your own police when it comes to obtaining a loan.

The first step you should do is clearly and completely map out all of your liabilities.  You must account for every possible bill that you pay each month.  Doing this will prevent any surprises in the future.  Certain bills are paid semi-annually or quarterly (such as car insurance, trash, and/or sewer bills) and thus, you may overlook them when compiling your list of liabilities.  This is a mistake.  In order to make sure that you can truly afford a loan, you must account for every bill that you have. 

In addition to accounting for every bill, you must take a look at your income.  Do not include any extra money that you sometimes receive (such as overtime or a bonus) as such money is not an accurate picture of your monthly revenue.  Consider only your normal, consistent paycheck when determining your monthly income.  If extra money comes in via overtime hours or a bonus, you can use that money however you want, but do not include it as a consistent source of revenue for a home loan.  Doing so can cause you to take too large of loan, which can cause serious financial problems.

Remember, do not rely completely on a lender’s recommendation.  Make sure that you completely and accurately account for all of your monthly liabilities and well as your semi-annual and quarterly bills.  You want to be over inclusive when accounting for your liabilities.  However, when accounting for your monthly income, do not include money that you do not regularly receive.  Doing so can be severely detrimental to your financial situation.