If you want to buy a home with a mortgage that is at least $200k, you will need a good amount of money. Most people don’t have this much money and it can make the process of buying a house a very difficult one. However, there are a few things you can do to increase your chances of being approved for a mortgage.
Debt-to-income ratio (DTI)
The debt-to-income ratio (DTI) is a common measurement of how much pre-tax income a borrower can spend on paying off debt. It is an important tool for lenders to measure a borrower’s ability to repay a mortgage.
A common benchmark for a DTI is not spending more than 36% of your monthly pre-tax income on debt payments. A healthy debt-to-income ratio depends on several factors, including the amount of your income, your debts, your lifestyle, and your tolerance for financial risk.
A debt-to-income ratio is calculated by dividing your total debt payments by your gross monthly income. These include your mortgage, auto loans, student loans, and minimum credit card payments.
If you have a high DTI, you will need to put more down on your home. You will also face higher interest rates on your loan. Lenders typically prefer a DTI lower than 36%. This will improve your chances of getting a mortgage.
You can lower your DTI by increasing your income. Also, you should avoid taking on new loans for major purchases. Instead, focus on paying off your existing debts.
Besides lowering your DTI, you can improve your credit score by decreasing your credit utilization ratio. Your credit score is a key factor in determining your mortgage affordability.
It’s important to know what your mortgage lender is looking for when trying to get approved. The best way to figure out what kind of loan you qualify for is to go through a lender’s website and see what loans are available for your specific circumstances. Fortunately, there are many loan options for veterans and active duty service members.
One of the perks of a low down payment is that lenders are willing to offer you a better interest rate. You may also be eligible for an FHA loan, a type of mortgage loan offered to current and former military personnel. To qualify for one of these loans, you will need to show proof of income, a stable employment history, and have a credit score of at least 620.
There are several online calculators that will help you find out which of these loan types will be most beneficial for you. Most new homebuyers opt for a conventional mortgage loan, which is a safe bet. If you are looking for a more lenient alternative, you may want to consider an FHA loan, which allows borrowers to pay no points in exchange for a larger down payment.
It’s always a good idea to shop around for the best rate, but you’ll want to make sure you’re getting the most for your buck.
Millennials and Gen Zers think this isn’t the right time to buy
The Bankrate survey asked a variety of younger Americans about their thoughts on home affordability. A majority of the respondents cited affordability as the main reason they are not homeowners. In addition, a quarter of those surveyed aren’t saving enough.
There are many ways to get around this obstacle, including using mortgage programs that can make homeownership more affordable. But a poor credit score can limit your options.
One of the best strategies for getting a better rate is to shop around. You can save thousands of dollars in the long run by shopping around to different lenders. Moreover, you can use your time to build up your credit.
Another strategy is to buy a house with a smaller down payment. Typically, a down payment is 3% of the purchase price. However, you may have to pay private mortgage insurance (PMI). This insurance costs a few percent of the home’s value.
To make sure you are getting the lowest possible interest rates, shop around to a number of different lenders. For example, you might be able to get a 30-year mortgage with a 4.753% APR. As of April, the average rate on a $300,000 loan was 5.366%.
One way to make sure you’re making the most out of your down payment is to put some of it toward repairs. Experts recommend setting aside 1% of the price each year for maintenance.