Budgeting

How to Qualify for a Mortgage

I generally talk about decreasing your debt. But, today, I want to talk about how to qualify for a mortgage. A home can be a good investment in your and your family’s future. I’ll give you four good reasons to own a home but then I’m going to talk about the long-term of how to get there.

  1. Finance. Mortgage payments don’t go up every year.
  2. You’re building equity. Equity is when your house is worth more than you owe. You want to have positive equity as much as possible.
  3. Stability. You don’t need to move all the time.
  4. Tax Breaks. Don’t buy solely for this reason. Due to the Tax Cuts & Jobs Act of 2017 most people aren’t itemizing anymore so they aren’t getting this tax break.

You can use an online Mortgage Calculator to see how much you might qualify for. But, don’t try to buy as much house as any lender tells you you can afford. This is how people get “house poor.” They forget about the extra expenses of living in a house and over-extend themselves on how much they buy. You want to be in a good position when you purchase a home.

If your credit is bad, it could take many years for you to be in a position to purchase a home. But, I like to start somewhere and knowledge is power.

  1. Down payment. There will be a minimum down payment requirement. This can range from 3.5% – 20% of the purchase price. You also need to take into account, there will be extra fees with the loan origination. Focus on #2 and #3 first. Then, you can start saving up for the all important down payment.
  2. Credit score. You want to start by getting your credit score up to 580 and keeping it that high for a year or two. Credit score effects your total loan amount you could qualify for. Credit score can effect the down payment and interest rate that you pay. An optimal credit score will help you buy the most house for your money. So, start paying extra on loans to try to get that score up. This is an area that can take years to build up. But, just start where you are and do the best you can.
  3. Debt-to-income ratio. Calculate this by taking your monthly debt payments divided by your monthly gross income. The acceptable ratio is set by (HUD) not the lender but some lenders may even want a lower ratio. This just tells the lender how much extra money you have each month. Currently, you must be at less than 31% for your housing payments and less than 43% for all debt. Paying off your debts is the first priority if you want to qualify for a mortgage.

In order to qualify for a mortgage, you are going to need to start by controlling your own finances. All of my blog posts have ideas and tips about budgeting and paying off debt. Paid off debt feels so good and can give you freedom to spend your money how you want.

Click on my contact page if you want a free budgeting consultation.

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