4 numbers to determine your Buying Power!
Buying a home is one of the most important decisions you will ever make. This will be the place you either grow in or settle down in. You’ll make wonderful memories from birthdays to holidays with all of your friends and family. But do you know what factors go into that loan to purchase that home you want? Here’s a list of the 4 main points of obtaining that loan to purchase your dream home!
- Credit Score
Probably the most important, crucial key to landing a loan. This number reflects your capabilities financially and lets the lenders know you’re able to pay on time every month! There’s 5 factors that influence your score:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- Credit mix (10%)
- New credit (10%)
Now, you can still get a loan with a poor credit score (below 620), but it will effect the quality of that loan. Never stop trying to better this number, even after you’ve hit a quality number. Yes, having a 680 is great, but having a 740 is even better.
2. Down Payment
Money holds all of the power. The more money you have to put down, the better your chances are of getting a quality loan. You often hear the Rule of Thumb when it comes to down payments. Why everyone suggests 20% down and why it’s the most common is because if you put down at least 20% it could eliminate the need for Private Mortgage Insurance (PMI), the power to negotiate a low interest rate and could place you above the competition.
The more money you put down upfront, the less interest you’ll pay at the end of your loan.
3. Debt-to-Income ratio (DTI)
Income is key to successfully paying your loan on time every month. Lenders want reassurance that you can pay for you loan and other debts that you may have. Lenders will look at two parts, front-end-ratio and back-end-ratio.
- The front-end-ratio is your monthly housing payment including insurance, interest, taxes, and PMI if applicable. They’ll divide that by your monthly income. Generally, it’s ideal to keep it at or below 28%.
- The back-end-ratio is a calculation of your monthly debt payments divided by your total monthly household income. Ideally, this should be at or below 36%.
Being above these two numbers doesn’t mean you can’t qualify for the loan, but just like having a poor credit score, it can effect the quality of your loan as well.
4. Assets
Assets create a safety net for your loan. This assures lenders that you have income coming in monthly and the financial stability to stay on top of your payments, no matter what hardships may come your way.
“Most people don’t plan to fail, they fail to plan” — John L. Beckley

