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Buying a home is an exciting investment, but it can also become complicated and costly if you aren’t properly prepared. By learning more about the process and what to expect financially, you’ll be prepared to make the best decisions for your family, lifestyle, and wallet.

Here are five financial considerations to keep in mind as you start the home buying process:

1. Down Payment

A home’s down payment is the amount a buyer pays in cash upfront to guarantee a sale. It’s their first stake in ownership and calculated as a percentage of the property’s total value. In general, a higher down payment will increase your chances of mortgage approval and can even eliminate the need for private mortgage insurance (PMI). Buyers can expect to put down between 5% and 20% of their home’s total value. Though, there are certain loan types that have lower requirements.

While 20% is generally a safe estimate, the optimal down payment will depend on your specific circumstances. While a higher down payment can lower your monthly mortgage payments, you also want to ensure you have enough money to live comfortably once you’re settled.

2. Credit Score

Heading into the home buying process, it’s important to have a good credit score. A higher score will make you more attractive to lenders, increase your chances of loan approval, and help you lock in lower interest rates. Most mortgage lenders require that you have a FICO credit score of at least 620. However, the higher the score, the better.

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If you have a credit score below 620, you may still be able to qualify for special financing if you participate in a first-time homebuyer program or apply for a government-backed loan. You may also be able to secure a loan if you’re willing to pay higher interest.

3. Loan Availability

Like most homebuyers, you probably don’t have the cash to pay for your property in-full. Before settling on a home, you’ll want to explore your mortgage loan options. Many homeowners opt for conventional loans. These typically require a down payment of at least 3%, a minimum credit score of 620, and that you pay for PMI until you reach a 20% equity in your property.

If you don’t meet these requirements, FHA loans are another popular option for financing. Backed by the FHA, these types of loans only require a down payment of 3.5%, no PMI, and lower minimum credit score limits, making them attractive to first-time buyers or individuals with lower credit. Knowing your options ahead of time will help you determine how much you’re actually able to afford.

4. Closing Costs

Closing on a home involves more than just your down payment. Referred to as closing costs, there are additional fees that aren’t included in the listing price. Closing costs typically total anywhere between 2% and 5% of the home’s price, which could add thousands of dollars to your initial investment, which is why it’s important to cushion your budget so you aren’t surprised by the bottom line.

If you don’t want to pay for closing costs out of pocket, you may be able to fold them into your mortgage and pay them off in monthly instalments. Or, your lender may be willing to increase your interest rate in exchange for a credit that would cover your closing costs.

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5. Debt-To-Income Ratio

Lenders want to verify that you are financially able to take out a loan and meet monthly payments. In addition to looking at your income, credit score, and bank statements, they will factor in your debt-to-income (DTI) ratio. This ratio measures your recurring monthly debt against your gross monthly income. As a general rule, lenders require a DTI ratio of less than 50% for loan approval.

You can lower your DTI in two ways. You could increase your income by asking for a raise, working another job, or taking more overtime. You can also lower the ratio by paying off your debt ahead of schedule and avoiding taking on additional debt.

Knowing how to prepare your finances will help make closing on a home a seamless process. Keep these considerations top-of-mind to ensure you make the best decisions for your budgetary needs.