There is nothing more disheartening than having your eye on something just to have it ripped away from you—your dream home, a new luxury automobile, or the newest technological gadget. Unfortunately, this is a disastrous and very common occurrence when it comes to purchasing your dream home.
Turned Down for Unforeseen Errors
All it takes is one person improperly inputting your information. A small oversight or one miss-entered keystroke can cause a conflict, thus not allowing approval for the loan application. (If you can buy your dream home with cash, you won’t need to bother with checking your credit for a loan, but you should be checking your credit every year…it’s free!)
What Can You Afford?
Often times, lenders act as guardrails for you as a consumer. You may think that you can afford a certain house, based on the price, but a mortgage lender will ensure that you will not bite off more than you can chew.
One of the ways in which lenders decide on how much loan you can afford is based on your debt to income ratio. The following, from the Consumer Financial Protection Bureau, explains how to determine your debt to income ratio:
“To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out. For example, if you pay £1500 a month for your mortgage and another £100 a month for an auto loan and £400 a month for the rest of your debts, your monthly debt payments are £2000. (£1500 + £100 + £400 = £2,000.) If your gross monthly income is £6000, then your debt-to-income ratio is 33 percent. (£2000 is 33% of £6000.)”
Not knowing where your credit stands can cost you thousands of dollars on higher interest rates. Using a reputable mortgage calculator, like this one, will show you just how much you stand to save by having a lower interest rate on your loan. It is astonishing just how much one percent makes on the total cost of your mortgage. On a £175,000 home, one percentage point can cost you almost £35,000 additional dollars over the life of your house.
The Big Picture
Most people are not aware of how much debt they have to their name. Before you buy your dream house, check and see what debts you have outstanding. The last thing you want is for your dream house to be a financial burden to you and your family.
As most homes are one of a kind, the heartbreak of missing out on your “dream home” can be a devastating blow, especially if you and your family have fallen in love with the property. Find out more here on how to ensure that your credit is where it needs to be, so that you don’t lose out on your dream home.