Are you ready for a mortgage? - Baltimore Post-ExaminerBaltimore Post-Examiner

Are you ready for a mortgage?

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Buying a home can be both an exciting and challenging prospect, and there are a handful of things to consider to make sure you’re mortgage-ready. Taking on a mortgage is legally binding, and it’s also a long-term financial commitment that requires a good hard look at your current financial state.

Being mortgage-ready isn’t strictly financial, however, and owning a home requires that you’re capable of more than just being able to afford a mortgage payment. Having at least some basic fix-it skills is pretty important when you own your own home.

Homeownership can invoke a lot of pride, and when someone cares for their home, it shows. Caring for your own home means being personally involved in the labors of homeownership, including maintenance, repairs, tending to the property, and so on.

Reviewing Your Financial Fitness

In order to be ready to buy a house, you need to take a long, thorough look at your finances. What does your budget look like? Do you have some idea of your future financial situation? Do you have a steady and reliable income? Have you saved enough for a down payment? How much money do you make a month? How much do you save and how much do you spend? What are you spending your money on? How much of it are you using for your current residence? Do you ever have months where you question your ability to cover the basics like utilities or groceries?

These are all important questions, and when looking at your financial state, a good starting point is looking at your debt-to-income (DTI) ratio. The Federal Housing Administration (FHA) has set the DTI standard to 43% for mortgage applicants. This number is used to demonstrate a borrower’s ability to make monthly payments and is configured by adding all the costs together (outstanding debt, plus the housing-related costs of a mortgage, insurance, taxes, etc.) and equaling no more than 43% of your gross monthly income. Generally speaking, if everything together is 43% or less of your monthly gross income, you should be approved for a mortgage loan.

Mortgage Payments are Long-Term

The payment amount will be due monthly for between 10 and 30 years. With more people opting for a 30-year mortgage, they’re looking at a long-term financial commitment. The monthly payments; the monthly, quarterly, or annual taxes; plus the costs of maintenance and upkeep can add up significantly. Making sure you’re in a position to put a chunk of your monthly income straight toward your mortgage payment can make sense if your DTI is low enough, if your credit score is high enough, if you have a stable and consistent income, and if you can afford the down payment. Owning a home versus paying down someone else’s mortgage via renting can make a lot of sense if you’re in the right place.

Affording a Down Payment

The percentage needed as a down payment can vary greatly (sometimes as low as 3.5% with an FHA loan, with other lenders requiring a 5% to 10% minimum). However you look at it, a down payment is a significant chunk of money that needs to be ready to transfer in order to close on the property. It takes time to save enough money to put together a down payment.

With that said, buying a home isn’t so much about your ability to pay for it in the here and now but over the course of time.

Knowing Home Maintenance Basics

If there is a water leak, would you know how to fix it? Do you know how to turn off the water? There are myriad things that can happen when you least expect it, and being capable of acting logically and swiftly can mean the difference between a little puddle to mop up or a full-blown flood in the house. The latter can not only be damaging to your possessions, but also might jeopardize the floors, walls, and ultimately, your health. Water damage can allow moisture to permeate into parts of the structure that aren’t readily accessible and require thousands to clean up, repair, and waterproof. Mold growths can not only affect your health but the future financial health of your home.

Other Factors to Consider When Deciding Whether You’re Mortgage-Ready

How Is the Economy Doing?

There can be a lot of uncertainties during an economic downturn. People can lose their jobs and lose access to services, and a lot of people can end up defaulting on their mortgages. Lenders will foreclose on properties where the mortgage hasn’t been paid, depending on their policies and the housing market. Typically, a foreclosure will start after four missed payments. While we can’t outright plan for economic issues, we can plan ahead to make sure that we tuck aside enough to carry us through should anything happen.

What Does the Housing Market Look Like?

Take your time to get a feel for the housing market. While buying a property is usually considered to be a strong financial investment, it’s important to be aware of what’s going on in the market and how it plays into the economy. If it’s hard to find a property on the market, then waiting for a little while might be a good choice. It’s also important to consider the location of the property. Does it make more financial sense to buy, or would renting be a better idea? Your mortgage loan will still be susceptible to ups and downs in the market, and recessions can hit homeowners quite hard.

Is Settling Down Right for You?

Are you at a point where you can see yourself settling down for a longer period of time? If your career and social circles are built-in to the city you’re living in, it can make sense to purchase something if all the other factors line up.

When you have made the decision that you’re mortgage-ready and would like to talk with an expert who can help review your situation and see what sort of mortgage loan you qualify for, connect with us at Rivermark Community Credit Union, and we’ll be there to guide you through the process.


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