The idea of buying a new home is exciting. It’s the American Dream to have a place all your own. But, a home is also a huge responsibility, especially when it comes to paying your monthly mortgage. Because, while you might be able to put off repairs or skip a week of upkeep, failing to pay your mortgage means trouble. If you feel like you’re ready to buy a home, here are a few questions to consider to help you decide if you can take on a mortgage too.
What does it take to qualify for a mortgage?
Mortgage lenders look at a variety of factors before deciding to give you money. Your income, debt, savings, and credit score are all included in the equation, though your credit score may be most important. In fact, your credit score not only determines whether you’ll get a loan, but the type of loan too.
According to Credit Sesame, the minimum credit score a lender will consider for a mortgage loan differs, depending on the economy and type of lender. But, in general, the following rules apply:
- To qualify for a conventional loan, a credit score of at least 620 is required.
- To qualify for an FHA loan, a credit score of at least 580 is required.
- For credit scores below 580, it can be difficult to get a mortgage loan.
Income is also an important factor. Most experts suggest that your monthly mortgage payment shouldn’t be more than 28% of your monthly income. And lenders can’t approve a mortgage application when the payment exceeds 35% of your monthly income.
What kind of down payment will it take to get a mortgage?
If your credit score is already in shipshape, you’ll next have to ask how much you can put down on your new purchase. And, once again, your answer will affect the type of loan you receive. While it’s true most lenders recommend a 20% down payment, you’re not out of luck if you don’t have that kind of cash handy. Here is a breakdown of a few common loan types and their down payment requirements:
- FHA loans require a 3.5% down payment.
- Conventional loans backed by Fannie Mae and Freddie Mac require 3% down.
- Certain government agencies offer zero down payment options for qualifying members of the military.
The more money you put down, the more equity you’ll have from the get-go. And the fees and costs associated with closing your loan may be lower too. But, if you’re trying to move into your new home with the lowest amount of upfront money possible, that’s fine too. Just be aware of the extra expenses that come with the decision.
If you decide to contribute less upfront, lenders will look at your loan as being a little risker. And that usually means you’ll have to pay for mortgage insurance, which gets rolled into your monthly mortgage amount. Either way you go, buying a home requires at least some money down, and a lot more down the road, so be prepared for the extra expenses.
What are the other costs of homeownership?
In addition to your mortgage, homeownership comes with a whole slew of extra expenses. In fact, on average, Americans spend about $1,200 per month on maintenance costs and other expenses. That figure includes repairs, upkeep, insurance, taxes, and utilities. So, in case you thought you were home free after closing, think again.
There’s no doubt about it: buying a home is expensive. But that’s not to say homeownership isn’t worth the price. It can be an incredibly rewarding experience. Just be responsible, make your payments, and budget accordingly, and your decision to buy a home may turn out to be one of the best investments you ever make.