Let’s face it – you are tired of moving. The rent is always too high and it gets worse with every new lease you sign. And even if you do find a great place, it simply it’s your own to do with as you wish. Then there’s the fact that you’re helping pay your landlord’s mortgage and not your own. Maybe you’re ready for your own house. But are you ready for a mortgage?
Here are some warning signs that you should keep renting (at least for a while) :
You recently switched jobs
If you’ve just started a new job, switched career paths, or been working sporadically for a while now, your employment history might set off some very loud warning bells with any potential lender. Lenders prefer to see that a home buyer has two years of stable employment in the same industry – unless the home buyer is right out of college, which carries special circumstances.
You’re still building your savings
Saving for a down payment is tough. Nowadays you might have to put down 20% of the home purchase price. But you’ll still pay private mortgage insurance. And while you may be eligible for down payment assistance, you’ll need to show you’ve got some savings in the bank – and then some. If you’re emptying your bank account to make a down payment, you can be sure lenders are going to raise an eyebrow. And who can blame them? They like to see savings, as nothing or little saved provides no cushion in the event of an emergency.
Your bills are high
If you’re carrying a boatload of credit card debt, paying off a personal loan, or something else, you may very well have trouble qualifying for a decent home loan. Lenders look at your debt-to-income ratio when deciding whether to approve your loan and how much you qualify for – and everything adds up. In fact, having a high debt-to-income ratio may knock of out of the running for a mortgage altogether. The highest debt-to-income ratio you can have for a qualified mortgage is 43%, according to the Consumer Financial Protection Bureau.
Your credit isn’t stellar
The credit scores you see online will be a bit different from what lenders see (they use their own credit card system), but they give you a good idea of where you’re at. Don’t need a perfect 850 to get a mortgage. The higher the score, the better off you are. Still, different loan programs and lenders will take lower credit scores – as low as 580 to qualify for a FHA loan and 640 to qualify for a conventional. The most powerful way consumers can boost their credit score is to improve how they use their credit cards. That means the following : pay down your credit card debt, pay all your bills on time, keep your oldest accounts open and in good standing and don’t take on new debt. Plan on working that program for several months to see a significant boost.
The timing isn’t right
Wanting a house is one thing – a great thing! But, being ready for a house is another. Even if your financially ready, there may be things in your life that need sorting first. Not only do home buyers have to look for whether or not they can qualify for a loan, they need to look at other areas of their personal and financial life to determine if buying now is the right decision for them. If making mortgage payments is going to take away a lifestyle you enjoy, cause too much stress to stay in a job they hate, or further stress an unstable relationship with a co-signee, perhaps it is better to come up with a homeownership strategy now to find the balance in the future.
Before your start hitting up lenders, ask yourself if a mortgage is going to change your life for the better. Because, after all, that’s the whole idea.
