The cost of living has gone up within the last few years. In fact, it has gone up 9.1%, which is more than the experts expected. That would make you think that getting stuck in a mortgage would not be a great idea, but the opposite is true. The interest rates for a loan are low, the government is offering exceptional help for home buyers (especially first-time buyers), and if you have the money to buy, you will have the pick of the litter.
The question is, how do you know when you’re ready for a mortgage? You can check off a few things to make sure that you are prepared because you do not want to rush into a contract that may end up going into default.
- Debt Is Paid Off – If you do not have your credit cards caught up, your utilities paid, and all your other revolving accounts at zero. If you have all your debt paid off, you can go on to the next point. If not, work on that first before you move on.
- Increased Credit Score – Since you turned eighteen, you should have been working on building your credit report up. That will come in handy because the higher your number is, the lower your payments will be, and the more money you will qualify for. Your score must be over 700, with 750 being more ideal.
- Hold A Job – The longer you are at a job, the better you look to a lender. What it means to them is that you are stable and secure in your career. This means that you are a safer risk than someone that likes to jump from job to job. This is not to say that you should not take a better job just to keep a good record, because in the end, money talks. If you explain that you moved for better pay, they will not hold it against you as long as everything else matches up.
- Substantial Down Payment – You should have been saving for an MLD mortgage long before you decided that it may be time to get a loan. You want to have at least 10% of the asking price, even more, if possible. You need to have this amount above and beyond your emergency fund.
- Emergency Fund – You want to have some money saved up, above and beyond the amount for the down payment. It needs to be enough to cover the closing fees and any other costs that may come up. You must always be prepared for the worst but hope for the best.
- Know What You Can Afford – Your budget is the most important thing you need to consider. If you do not have a recent budget, now is the time to do so. Your lender will want to see one anyway, so you might as well get ahead of the request. What you need to know is how much money you will have, after your monthly bills, that could go for a house payment. Make sure to mark next to your current house or rent payments because this amount will no longer be needed. It can go towards the loan payment instead.
You are the only one who knows if you are ready to take on a mortgage. The guidelines above can help you decide if you can afford to make a move, but your circumstances will be specific to you. You have been living the life, so you know if a mortgage is a good move. If you have been struggling to make your current payments, you may want to wait a bit. You do not want to get stuck in a contract you cannot pay because you will lose your home and everything else. After all, if you go into default, you are forced to move, whether you can afford it or not. The bottom line is to ensure that you are financially and mentally ready to get a mortgage before you even attempt it.