How to Know When You’re Financially Ready to Start House Hunting
buy a home
Everyone asks themselves when they are ready to settle down and buy a home at some point in their life.
Whether you are single or in a relationship, using cash, or looking for the best mortgage rate, house hunting is a serious financial investment that requires careful consideration.
Where Should You Begin?
Knowing your credit score and debt-to-income ratio is a good place to start.
Your best bet on getting the mortgage rate you want is to show a high credit score and getting rid of your “bad debt” that is negatively impacting your score.
Examples of “bad debt” are past-due medical bills and credit cards in collections.
Understanding how credit scores are calculated is the key to a high number.
Lenders prefer seeing that their applicants have several lines of credit, use the money minimally, and make payments when they are due.
What Is Your Debt-to-Income Ratio?
Your “DTI” is simply a measure of the debt you have to your overall income. Utilizing your credit impacts your credit score, not your DTI.
If your DTI is too high for a lender’s liking they might not offer you a loan.
The acceptable rate for DTI is 36% or less because not all debt is bad debt.
Good debt is generally a long term investment that helps your credit score when paid on time, usually with credit history, like a car payment, mortgage, and student loans.
You can calculate your DTI by adding up your monthly bills and divide the total by your gross monthly income.
What Do You Need for a Down Payment?
If you’re going for a mortgage, a minimum down payment of 20% is recommended to be safe.
There are government programs for 0% down payment but this can sometimes mean a higher monthly payment.
With mortgages, it’s important that you are realistic about what you can afford on a monthly basis.
This could mean you need to have a down payment closer to 30% or higher to get the monthly rate you desire.
Make sure you can afford the debt you have, save for retirement and emergencies, and live comfortably at the same time.
It can take a while to save for a down payment (and quite frankly, daunting) so a reasonable financial plan may be necessary.
If you are still unsure where to begin, consult with a mortgage broker or an experienced real estate agent.
Category: Real Estate
