Are You Ready to Apply for a Mortgage?

Taking out a mortgage is a serious endeavor such that it is important to take stock of a few things first before you go out and apply for one. Here are some of them:

Your own checklist

The first thing you should check is your credit rating. The higher your rating, the better. As a rule, lenders give the best deals to those with a credit rating of at least 700.

Next, assess your debt-to-income ratio. This is how much of your monthly income goes to pay off debts. The lower it is, the better. Lenders will favor your application if they know that you are liquid enough to meet your mortgage payments on top of your current monthly obligations. Take note that aside from mortgage payments, home ownership will also cost you insurance and property taxes. You should be able to afford these as well. As a rule of thumb, make sure that these payments do not exceed 28% of your gross monthly salary.

Check also if you have saved enough for the down payment. The higher you can be able to put as down payment, the better. Having a significant amount as down payment will shave off a chunk of the money that you will be borrowing. Make sure that your down payment is at least 20%, or else you will be required to pay private mortgage insurance, which will add to your monthly payments later on.

You should meet all the criteria in these three areas before you apply for a mortgage. Additionally, you should also assess your maturity in handling finances. Having a monthly budget, being in control of expenses, responsible credit card use, and a steady income are things that you should already possess before taking out serious debt such as a mortgage. You should also have life insurance to cover the mortgage and your next of kin’s living expenses in case of death.