First-time home buyers are a dying breed. According to a 2017-published, Harvard study, more than 38 million households in America are stuck renting. Every situation is different, but the general culprits are a low inventory of properties for sale, stagnant income growth, and burdensome student loans.
Although the seller dictates the market in most of the country, gaining a foothold in the real estate industry more doable than you think. A mortgage company Like PRMI Louisville would say that all you need is patience and prudence.
To help beef up your credentials, do the following:
Build Your Credit
This one is a cliché, but it’s never wrong. Lenders would judge you with your credit score, giving them almost everything they need to know about you as a borrower. The lowest credit-score requirement you would find is 580, but it usually applies to FHA mortgages only; other housing loans are more demanding. Your credit score affects the interest rate you can lock down, as well as the private mortgage insurance (PMI) premium you must pay, if applicable.
There are many ways to increase your credit score over time. Ensuring that your credit card charges stay below 30% of your limit, keeping your old accounts alive, and settling bills punctually are the best practices.
Save as Much Cash as Possible
Even if you intend to seek financing for your home purchase, your lender would likely ask you to pay your share. Ideally, you should cover 20% of the cost of the property, but a 5% down payment is generally acceptable. Putting down less than 20%, however, would require you to pay for PMI until your balance reaches a “safe” level for the lender. The PMI premium would increase your monthly mortgage payments for many years.
Also, you need to provide proof of seasoned assets to show that you can maintain your loan even if you become jobless in the future. They have to be verifiable to allow the other party to see whether they’re truly yours or not.
Eliminate Your Debts
Keep your debts to a minimum, especially before applying for a mortgage. The highest debt-to-income (DTI) ratio most lenders want to see is 43%. Anything greater than that would make you an extra risky borrower. Studies reveal that borrowers with higher DTI ratio is likely to run into trouble and default on the loan down the road. Divide your gross monthly income by your monthly debts (for your mortgage, auto loan, and other financial obligations) to determine your DTI ratio.
It’s well-documented that millennials are destined to own their first homes older than their parents did, given the current circumstances. But if you’re smart with your finances, you could truly afford to buy a property sooner than your peers.