In today's hot housing market, qualifying for a mortgage can be complicated and overwhelming, especially for first-time homebuyers. However, having these three things can significantly increase your chances.
One of the first things lenders look at in the mortgage process is your debt-to-income ratio (DTI). This is the total debt you pay each month divided by your monthly income. So, if you paid out $1,000 a month in debt and your total gross monthly income is $3,000, your DTI would be 33.33%. You are not only more likely to get approved for a better mortgage with a lower DTI, but your overall financial health will improve as well.
When saving as a first-time homebuyer, put some money towards your down payment and some towards your debt. If you are unsure about what mix to allocate towards each, a financial coach can look at your unique situation and determine what is best for you.
The second part of qualifying for a mortgage is to have enough cash for a down payment. For a conventional mortgage, you will typically need to have a minimum of 3%-5% of the home's price, depending on your lender. Different types of mortgages have other requirements. Ask your financial coach what the additional requirements are. Many states offer down payment assistance programs for qualified borrowers, especially first-time homebuyers. Reach out to your financial coach and ask them to see what is available to you and what works for your situation. Usually, you must take a class first on what being a homeowner entails, and then you are eligible for various programs.
An easy way to lower your debt and increase your savings is to set up automatic savings transfers. Automatic savings can improve your debt-to-income ratio and help you to save more towards a downpayment. With Automatic savings, each time you get paid, set aside a certain amount or percentage towards paying down your debt and into a savings account. By setting up an automatic transfer, the money never hits your spending account, and you have forced yourself to save and pay off debt.
The challenge with creating a savings plan is to stick to the savings plan. This is where a financial coach brings another layer of accountability. With a personal financial coach, you will be able to get someone to guide you through your finances and give you tips on where you can cut your spending and put that extra money towards your down payment fund. Having a financial coach on your side throughout the mortgage process will improve your financial health and help you find things you might not be aware of to help you qualify for a mortgage.
Getting approved for a mortgage should not be a challenge. With the expert help of a financial coach on your side, guiding you through your unique situation, you can pay off debt faster to lower your DTI and save the right amount for your down payment to be a homeowner quicker than you expect.
Before you go out and start looking for the home of your dreams, talk to a financial coach near you so you can worry about what color to paint your walls and not how you are going to qualify for a mortgage.