Purchasing a home has long been considered an essential part of the American Dream. That dream can turn into a nightmare in a matter of weeks if you purchase a home before you’re ready. Wondering whether you’re ready for a mortgage? Here are some signs you’re not.
Your credit isn’t in great shape. Not only does your credit score influence whether you can get approved for a mortgage, it also plays a big role in the cost of your mortgage. If you have seriously negative information on your credit report, you may not be approved for a mortgage. Or, if you are approved, you may only be approved for a higher interest rate – which translates to a higher monthly payment. Improving your credit before buying a home will make your mortgage more comfortable.
You have past due bills you can’t afford to pay. Mortgage lenders will be reluctant to approve your application if you have past due accounts on your credit report. This could include late payments, collection accounts, unpaid charge-offs, and even unpaid public records. If you can’t afford to pay these bills, there’s a good chance you’ll also have a hard time making your mortgage payments. Before you move further into the homebuying process, work on paying off these accounts.
You have too much debt. Even if you’re caught up on all your bills, it doesn’t necessarily mean you’re financially ready for a mortgage. If you’re spending too much on debt each month, you may not have enough money left over to afford a mortgage and other housing expenses. Your mortgage lender will consider your debt-to-income ratio when they’re approving your mortgage application. Reducing your outstanding debt, especially credit card balances, will help you get approved for a mortgage. It will also make it easier to afford your mortgage payments once you’ve completed your home purchase.
You don’t have enough money saved up. Having a down payment saved up is a great step toward getting approved for a mortgage. However, if you’ve only saved up enough money for a down payment, you still may not be ready. There are also closing costs, moving costs, and property taxes to consider. You may also need to spend money on decorations and home furnishings. While it’s not a requirement, you’ll be much better off if you have an emergency fund that you can access in case of any unexpected expenses – like having to replace a major appliance.
Before you commit to a mortgage, make sure you’re as prepared as possible so you can enjoy your home without experiencing too much financial stress.