Fair Isaac Corporation, the name behind FICO, is the oldest and most well-known credit reporting…
When you’re ready to buy a house, there are many factors to consider. Many are in your control, such as your credit-worthiness and debt-to-income ratio. Several elements are largely out of your control. Interest rates, pricing, and the local economy are a few conditions over which you have little control, but that doesn’t mean you can’t work around them.
What are your best options for financing, and what does it take to qualify? How much house can you afford? Should you buy a single-family home, or invest in a multi-family unit?
Across the U.S., homes are still turning over fast, staying on the market for an average of only four weeks. Here in Oregon, both Portland and Eugene are still experiencing a housing shortage. Homes here are sometimes selling within days of the listing date.
The National Association of Realtors reports on December 22 existing-home sales fell in November, ended a five-month streak of gains. Even though there was a recent decrease, total home sales in 2020 looks to surpass 2019, despite Coronavirus shuttering much economic activity this year.
What does this all mean to you as a potential homeowner? Overall, conditions aren’t as prime as they have been in the past, but they are certainly not bad. One key point to remember is that Covid 19 stabilized interest rates, but those rates can rise at any time. This makes now the right time to buy a house.
Personal Factors to Consider
Examining your personal resources starts with reviewing your debt load. Most banks and mortgage companies cap that ratio at about 43%. Add up all your expenses, including your new mortgage, and then divide your monthly income into that figure. If your ratio is higher than 43%, then consider which expenses you can eliminate. Pay down as many credit cards and other loans if you can.
Check Your Credit Report
Your lender is going to check it, so you should check it first. The big three credit reporting agencies are Equifax, Experian, and TransUnion. Consumers are entitled to a free copy of their credit report from each of these agencies once every year. You can pull from them all at once if you’d like, or you can stagger your request so that you are checking your report every four months. The first thing to look for is errors. If you paid a creditor off, but it’s still on your report, call them to correct the error. Other errors can include information that is not yours, out-of-date information, and former spouse information.
Generally speaking, the higher your credit score, the better the mortgage rate you can get. If you have the means, pay down as much as you can on credit cards and other revolving loans. This will lessen your debt load as well as show a strong history of paying your bills on time and in full.
The best way to show a lender that you’re serious about your finances is to offer a large down payment. If you’re able to afford a large down payment, it will lessen your loan-to-value ratio. This will increase your chances of getting the mortgage you want. It also means you can get better loan terms, smaller monthly payments, and pay less interest over the life of your mortgage. Additionally, if you pay 20% or more of the value of the home as a down payment, you won’t be required to purchase mortgage insurance.
The Bottom Line
Look to your future today by shoring up your finances. Lowering your debt load, increasing your credit score, and actively saving for your down payment puts you in the right spot to buy the home you want when it comes to market. Once you have all those boxes checked, start looking for your new home!