America is home to 14 million homeowners, according to The Washington Post. In total, these homeowners owe $8.88 trillion to their mortgage providers. But, despite the cost that comes with owning a home, many U.S citizens see property ownership as part of the ‘American Dream’ and are willing to pay for it. As a result, 5.5 million properties are expected to be sold this year as buyers reap the benefits of investing in real estate. However, in order to secure your dream home, you’ll likely need to take out a mortgage, but are your finances ready for the commitment?
A healthy credit score
A mortgage is cited as a good debt to have. This is because the end result of owning your own home and having equity provides stability and a possible income. But, to get to this point you need to have successfully taken out a mortgage. Mortgage lenders will look closely at your credit score to ensure that it is healthy and shows you and your finances in a good light. Crediful.com states that an individual with a credit score of between 700 and 749 is a good score. Therefore, it’s wise to only apply for a mortgage once your credit rating falls within this bracket. To boost your credit score, keep credit card spending to a minimum and pay off your debts on time.
You have a sizeable down payment
According to Value Penguin, 90% of home buyers take out a mortgage. However, to qualify for a mortgage, you’ll need to put down a lump sum. Typically, 20% of the agreed sale price is regarded as the ideal figure. The benefits of putting down a 20% down payment include more affordable monthly repayments and lower interest rates. Furthermore, when putting down 20%, you won’t have to purchase private mortgage insurance, meaning your costs will be lower.
The average American has $38,000 worth of debt, according to CNBC. Owing this sum of cash will make it difficult for you to afford your mortgage as well as the day-to-day costs of running a home, such as bills. Furthermore, you’ll find it difficult to find a lender willing to offer you a mortgage with this much debt hanging over you. The best action to take is to eradicate your debts altogether. By doing this, you’ll be in a great position and shouldn’t have any problem securing a mortgage. It will also provide you with the reassurance that you can comfortably afford all your expenses.
Taking on a mortgage is a big step for any individual, however, you should always check that you’re financially ready to make the commitment before applying for a loan. To ensure that you meet your lender’s requirements, it’s essential that your credit score is healthy, that you have a sizeable down payment and that you’re free of debt.