For many Americans, homeownership is a classic experience fulfilling the desire to live the American dream. Most likely, buying a home is something you’ve given lots of consideration recently. If you feel you are ready to step into owning a home, you’ll find the insights here helpful.
Homeownership is about responsibilities and capabilities. You’ve thought through buying a home and probably talked it over with family and friends. As a result, you are confident you’re ready and eager to take on the additional responsibilities of owning and maintaining a home of your own. Lenders and sellers look for that attitude when engaging with potential home buyers. More importantly, they look to see if the attributes listed below match your desire to take on homeownership responsibilities.
In the current competitive real estate market, it is more important than ever to position yourself with sellers as a top applicant who can fully meet their needs and those of a mortgage lender without hesitation. That is why understanding the following information is so beneficial to you now.
Five Signs You’re Ready for Home Ownership that Lenders Want to See
1) Steady income and employment history
People tend to move from job-to-job more now than in the past. Many more people work multiple jobs or are part of the gig economy, meaning they work as freelancers. Lenders stay on top of such trends, but they are still strict when seeing patterns in both income and work history that signal you are both responsible and capable as an employee or independent contractor. The latter status will get much stricter scrutiny in decisions to offer a mortgage loan. If you have a history of working for the same employer for two or more years or in the same line of work and can show steady or increasing income, you get high marks with lenders, increasing your chances of homeownership with favorable terms.
2) Debt-to-income ratio
For mortgage lenders, this ratio is a critical determining factor. It is a straightforward indicator of how well you manage your credit. The ratio reveals how much of your available credit you’re currently using. The magic number is 30%, which means you have not overleveraged yourself by using too much of your available credit. A low debt-to-income ratio makes a positive impact on your credit scores and ups your chances for gaining mortgage approval.
3) Credit history
Your lender researches your history on payments for credit cards, loans, and lines of credit. They look at everything that appears on your credit report. For them, it is another clear-cut indicator of how capable and responsible you are in making on-time payments regularly. It helps make the case that you will be a responsible borrower. Life happens, and if you have late or missed payments, providing your lender with a reasonable explanation will help you make your case.
4) Down payment
Some mortgage programs with little to no down payment are available, but they are rare and usually require exceedingly high standards from the other factors listed here. Lenders view your down payment as an investment in the equity of your home, and you should as well. Ideally, a borrower comes in with a cash down payment of 30% or higher. That is the traditional cut-off for deciding whether lenders require you to pay PMI (Private Mortgage Insurance). However, with the steady rise in home values, some lenders only require PMI if you put down less than 20%. PMI is insurance to protect your lender’s loan balance if you default on the mortgage.
A time-honored practice acceptable to mortgage lenders is if you receive a gift of money from a friend or relative for the down payment. Lenders will require a “gift letter” that proves the money is not a loan. There are gift restrictions on loan programs that vary by the lender. Check the status with your loan officer.
A typical practice for mortgage lenders is to request your most recent two months bank and investment account statements. They use the information to make sure you have the money you claim in your loan documentation. It is how they verify the cash reserves they require have been in your accounts for two or more months. Lenders also look for any recent large deposits, which is an indication the money was lent to you to boost your position with the lender.
Get Trusted Advice
There is a lot to learn and know about buying a home. You want as much helpful information as you can get, so you are not flying blind in the process of buying your first home. Talk to trusted advisors to help you completely understand the process. We will advise you on protecting your investment in your home and all your assets at the Dickstein Agency. You’ll get a professional evaluation of your needs, including the amount and type of NJ Home insurance coverage you need to protect your home against property damage and liability risks.
About Dickstein Associates Agency
Dickstein Associates Agency has distinguished itself as a leading provider of personal and business insurance in the tri-state area for over 55 years. We pride ourselves on being advocates for our clients and providing them with quality and affordable coverages. As an independent insurance agency, we partner with various carriers, allowing for flexible and unbiased coverage for each client’s unique circumstances. For more information on how you can leverage all of your insurance to work best for you, and how we can secure the best insurance in the marketplace based on your specific needs, contact us today at (800) 862-6662.