You Can Get a Mortgage!
Do you scroll Trulia, Zillow and Redfin? Do you stop and look at the house flyers in the window of real estate agencies? Do you dream about fixing up your own home?
You might be surprised. It may be easier than you think. If you can get a rental, you can most likely get a mortgage.
Even if you aren’t ready to buy a house, now. These steps will make it easier to buy your own home in the future.
To get a mortgage, you will need to prove that you have enough money in the bank for the down payment. Depending on the home loan program you qualify for, this may be no more than the first, last and security deposit for a rental.
The first step is save money.
Think about where your money goes. Everything adds up.
Bigger chunks add up faster than little chunks. Giving up your daily coffee may save you $100 a month. But lowering your car payment might save you a lot more. Move to a smaller, less expensive apartment. Look at your expenses to see where the big chunks are going.
Your car is worth less every year. A home is worth more every year. An expensive car may prevent you from buying a home. If you already have a high car payment, you may be able to trade the car in for a car with a lower payment.
Don’t incur late fees. Be sure to pay all of your bills on time. Late fees, higher interest, and penalties are a huge waste of money.
A mortgage lender will require you to demonstrate that your household income will cover the mortgage and still leave you enough to live on. A quick number is one week’s income, after taxes, is about what your mortgage payment should be. That’s just the interest and principle, not counting the part of your house payment that goes to taxes.
Do the math. Can you find a home with a payment that is about the same as 1/4 of your monthly income? Can you earn more?
That may not be as impossible as it sounds. Talk to your employer or HR if you work for the kind of place that has HR. Tell them you want to buy a house and you need higher income. Ask if there are positions or shifts you qualify for that pay better. Do you qualify for other jobs with higher pay? Depending on what kind of work you do, you may be able to get an idea how much more you can earn by talking to an employment councilor at a state Career Center or an employment placement agency. Often there are career training or on-the-job learning programs that will increase your employment value.
If you take time off work to go to school and incur student loan debt, you will delay your ability to buy a home. Every year you put off buying, the prices likely go up.
You may not be able to borrow as much for a mortgage if you already have student debt, owe a lot on credit cards or have a high car payment. Your total debt should not be more than a third of your income.
This has relaxed a little, the rule is now 28/36. Your mortgage can be up to 28% of your after-tax income. Your total debt can be up to 36% of your after-tax income. Some lenders may even be willing to go a little over, but you will pay for it with a higher interest rate or higher closing costs.
If you are serious about buying a house, don’t continue to use your credit cards. Don’t add to your debt. Pay off the debt you already have.
Don’t co-sign a loan for someone else. Surprise! If you co-sign for a car loan or even a rental lease, that debt is considered your debt. You are responsible for paying the money.
Improve Your Credit Score
If you pay your bills on time, you probably have good credit.
If you have old debts on your credit report, contact the lender and make arrangements to pay them off. If there is inaccurate information on your credit report, start the dispute process. Contact the credit reporting company in writing and explain why the information is wrong.
If you don’t have a good credit score right now, as you lower your debt and pay your bills on time, it will improve. By the time you are ready to buy a home, you will have a good score and deserve a lower interest rate.
If you aren’t in a position to buy a home now, start getting your finances in order. Houses cost more every year.
When You Are Approved for a Mortgage
Once you have been approved for a home loan, you can start shopping for the house you can afford.
Your first house is probably not your dream house. But it is a step in the right direction. If you buy a house you don’t actually like much, it doesn’t mean you have to live there forever.
Until you actually sign all of the papers, don’t change anything. This is not the time to buy a car, get another credit card or quit a job. Until the closing, they may check over and over again.
If you can’t find a house you like that you can afford, settle for any house that is in a safe neighborhood and convenient to where you work. If you keep it maintained, it will increase in value. Make practical improvements and keep up the yard. You are building equity as you pay for the house and the house increases in value.