It’s January and you’ve resolved to make 2019 the BEST YEAR EVER! How do you make that resolution come to life? A good way to start is by moving out of your current rental and into a home you can call your own. Many people think buying a home is simply out of the question, but getting a mortgage is actually not as tough as you think.
Who qualifies to buy a home?
Lenders use several different criteria to determine your eligibility, but these three things are the biggest factors when applying for a mortgage:
*Credit Score – Your credit score impacts your ability to get a mortgage and the interest rate you will pay. An excellent credit score is anything over 740, while a challengedscore is anything under 600. Most lenders are looking for scores above 580 to qualify for a mortgage. Your credit score is a complex creature, but don’t worry, this article will help you better understand your credit score and offers tips on how to boost that number if it’s not currently where you want it.
*Income and debt – Lenders need to be confident that you’ll be able to afford your new home, so your debt-to-income ratio is very important. This compares your fixed expenses like student loans, auto loans, credit card debt and other expenses, plus what you’ll be paying for your mortgage and its associated expenses, against your actual income. Ideally, lenders want your fixed expenses to be 45% or less than your gross monthly income. This ultimately determines how much you’ll be pre-qualified to spend when home shopping. If your ratio is off balance, make a plan to pay off some of these debts as part of your long term goal.
*Assets – Along with making sure you can afford your monthly payments, lenders need to see that you’ll be able to make your down payment and pay any closing fees. To do this, you simply need to show statements that provide documentation of your account balances. These funds must be seasoned in your account for a minimum of 60 days unless you are getting gift funds from a family member. Any unusual deposits will need to be explained. If you are getting funds from family, do this after you apply and have that family member fill out a gift letter to explain where the money came from.
A few handy tips
Now that you know how to qualify for a mortgage, let’s talk about how you can make the process as easy as possible.
Get pre-qualified before you do anything! It’s tempting to hop online and start daydreaming about available homes, but first you really need to know how much you can spend. Getting pre-qualified is simple and you can even apply online. This will give you an estimate of how much you’ll get approved for on your mortgage. Some real estate agents may even require you to be prequalified before showing you homes for sale.
Use an open house event to your advantage. It’s easy to feel rushed when you’re touring a home with just your realtor. Open houses are a great opportunity to take your time and get a feel for the house. It’s also a good time to ask about specifics like when certain features were updated or replaced. If you’re still interested after the initial open house, schedule a follow-up visit with your realtor to take another look and ask more in-depth questions.
Future-proof your home. The home you love today may not be the home you need down the road. Save yourself from having to repeat this process by planning ahead. Are you thinking about having kids? Look for extra bedrooms. Is a dog in your future? Get a yard with room to run. Obviously, there’s no need to go overboard, but making sure you are ready for what lies in your near future is a great idea. That said, don’t stretch your budget too much. Just because you’re approved for $350,000 doesn’t mean you should spend it. Keep some wiggle room in your budget so you’re neither “house poor” nor unable to handle unexpected expenses.
Give yourself time. Don’t rush into a purchase because THE house just showed up on the market. Give yourself ample time to save up, build your credit, pay down debts, find your preferred neighborhood(s) and figure out what features are really important to you.