If you have been saving for a down payment and dreaming of owning your own home, you may feel like you’re ready to make the leap from rent to mortgage. You’ve been looking at your budget, and your future, and want to build equity in a home of your own. That’s the American dream!
The Columbus Team knows that the leap from rent to mortgage is more than just exchanging one payment for another. We want you to be prepared for both a lender’s evaluation of your financial readiness and the very real expenses of homeownership. That way, you can relax and enjoy the process of choosing and buying the home of your dreams.
Mortgage readiness checklist:
- Budget for a rent/mortgage payment that is about 25% of your monthly income.
- A great credit score allows banks to offer you lower interest rates on your mortgage, so it’s important to have the best score possible. Dispute mistakes, make on-time payments, and try to pay down balances until you are using only about 30-35% of your available credit. Don’t cancel your oldest accounts, as that shortens your history.
- A down payment can affect your bottom line for years. If you put 20% down, you won’t be required to add mortgage insurance to your monthly payments but as little as 5% down is possible for purchase.
- Debt-to-income ratio is another factor lender’s look at when evaluating your financial health. Paying off a small loan or getting your credit cards down to 30% of the total credit available can make you a more attractive lending risk. Ask your favorite lender what they look for, so you can prepare.
- Factor taxes into the equation. Mortgage payments consist of payments to principal, interest, taxes, homeowner’s insurance, and other costs. Take a look at your favorite neighborhoods and find out the amount each homeowner pays per $100K of home value.
- A condo can be the perfect home for many, just remember to add the HOA fee to your monthly expenses.
- Set aside a certain amount for your home repair fund. You won’t have a landlord to call for fixing a clogged drain, broken appliance, or a leak in the roof.
- Homeowners also mow their own lawns, shovel their own snow, and more. A small fund to purchase tools and supplies to care for your new home is wise choice!