A big part of buying your first home is figuring out how much you can afford to borrow and comparing that amount to the typical cost of a house in your area. For example, in May 2014, the average home in Atlanta cost $145,400, according to Zillow. If a lender determines that you can only afford a mortgage of $100,000, you’ll need to find a cheaper-than-average Atlanta house or find a way to come up with a higher-than-average down payment.
When you’re getting started with the homebuying process, a mortgage loan officer can help you figure out how much you can afford to borrow and which mortgage programs might be best suited for you. A loan officer also explains all the costs involved in buying a home, so that you know if it’s really something you can afford to do right now.
A mortgage loan officer acts as the go-between for you and the lender. She is the person who will gather all of your paperwork and let you know if you prequalify for a mortgage. Prequalification is an important step, as it not only lets you know if you can get a mortgage, it also lets you know if the mortgage you can afford is anywhere near the typical cost of a home in your area.
The loan officer will look at several factors when deciding if you qualify for a mortgage and the size of the loan. Your debt-to-income ratio, the amount of debt you already have compared to the amount you earn, is a major factor. To get a qualified mortgage under the new mortgage rules, your debt-to-income ratio needs to be less than 43 percent, according to the Consumer Finance Protection Bureau. Other factors that influence the lender’s decision include the amount of your down payment, how much cash you have on hand and the stability of your job or source of income.
Picking the right loan
Mortgage loan officers can also explain all of the different types of mortgages to you and help you understand which is best suited for you, based on your circumstances. For example, if you don’t have enough cash to put down 20 percent of the home’s value, your loan officer might recommend a first time homebuyer loan or a Federal Housing Administration loan, both of which have lower down payment requirements.
Good faith estimate
Along with letting you know if you qualify for a mortgage, your loan officer needs to give you a good faith estimate (GFE) of the costs of buying a home. The GFE will tell you the amount of the mortgage, your monthly payment and the length of the loan. It will also list exact and estimated costs you’ll need to pay when you close. You can compare the amounts on the GFE to the average cost of a home in your area to see if home ownership is in the cards for you right now.
Image source: Flickr