Am I ready now? How will I even know when I’m ready? Buying your first home is exciting and scary all at the same time. Much like other major milestones, such as getting married and starting a family, there’s really no such thing as being completely ready. But when you’re working with the right professionals, the process will feel a lot less stressful.
After all, with mortgage rates hovering at historic lows and the economy taking a hit due to COVID-19, now is definitely a good time to at least weigh your options.
Here are some important indicators to keep in mind to help you feel rest assured you are, in fact, ready. And if you’re not ready, it’s completely okay to wait until you’re confident you can take on all the responsibilities of homeownership.
What do lenders look at when considering you for a mortgage?
One major factor lenders consider is your debt-to-income ratio (DTI) to determine how well you manage your monthly debt as well as your likelihood to repay a loan.
DTI is a comparison of your monthly debt payments versus your monthly income. Debt obligations include items such as credit card balances, rent, vehicle loans, insurance premiums and personal loans. Examples of earnings include your income (and spousal income, if applicable), investment income, alimony or child support as well as government assistance programs. Typically, a DTI of 36% or below is considered good. We’ll be able to help you calculate your DTI.
Lenders also look at your: Credit score; Income stability; and Down payment. To improve your chances of being in a good light with lenders, be sure your credit score is high, you can prove your income and you’re reducing existing debt as much as possible.
Be disciplined with what goes in to and what comes out of your bank account. Curb your spending habits, if necessary, as even small measures can lead to great savings over time.
The more you can put down above and beyond the required amount – 5% of the purchase price for a home valued at $500,000 or less and 10% for the portion of the purchase price above $500,000 – the better. The smaller your mortgage and the lower amount of interest you’ll pay over your time as a mortgage holder, the quicker you can build home equity.
Have questions about whether you’re ready to buy a home? Answers are a call or email away!