Thinking about buying your first home, but aren’t sure if you’re really ready? It might be you’re carrying debt, such as student loans. Perhaps you have a poor credit history. Or, you could be unsure about how big of a down payment you need to make.
Don’t just assume you aren’t ready. Each home buying situation is unique. Just like you probably wouldn’t try and diagnose an illness or replace your own carbonator, trying to solve your own financial troubles on your own isn’t the best option either.
By talking to a loan officer, you can get a clear picture of where you stand and come up with a plan for achieving your goals. Your loan officer will take a close look at a wide variety of factors, including your:
- Credit Score
- Credit History
- Monthly Liabilities (currently monthly financial obligations, such as student loan payments and car payments)
- Current Income
- Current Assets
The following are the four most common reasons you and your loan officer may decide it’s best to wait, at least a little while, before buying:
Your Credit Score Could Use Some Work
While you certainly don’t need a perfect credit score in order to secure a mortgage, a good credit score can significantly improve your situation. Why? Because the better your score, the more favorable interest rate you will likely be able to secure. It may be that taking some time to strategically improve your credit score could position you for more success in the long run.
You’re Not Making Enough Money (Right Now)
One of the significant factors a lender uses to determine how much money you qualify to borrow is how much you bring home. This isn’t to be mean. Rather, it’s to make sure you don’t buy more house than you can afford.
As a good rule of thumb, your monthly mortgage payment shouldn’t exceed 28% of your monthly income. Especially if you’re just getting started with your career, it may be that waiting until you’ve moved up the ladder (at least a bit) will position you for a more successful home buying experience.
You Don’t Have Enough Cash
Unless you qualify for a VA loan, nearly all mortgages require cash for a down payment. Even if you’re only putting 3.5% down for an FHA loan (a loan backed by the Federal Housing Administration), you still have to have that cash on hand. And, you should probably have a bit more than that cash on hand in the event of unexpected homeowner expenses.
You’re Carrying Too Much Debt
Another major factor in determining how big of a mortgage you can secure is your debt-to-income (DTI) ratio. This ratio looks at how much money you currently owe to other lenders in comparison to how much you bring home. In most instances, your total DTI, even with your mortgage payment, should not exceed 43%.
Are you ready to buy? Talk to Dan today.
