…but either you don’t think you can or don’t know where to start. It’s ok; this is more common than you think! We have recently been approached by young single people and partners telling us they want to buy a house but don’t think they can.
We have heard lately, “I can afford $1,200/month rent but can’t qualify for a $700/month mortgage”.
Unfortunately, sometimes that is true. Let’s take a look at why. Most of the time, it comes down to DTI (debt to income) ratio. Mortgage companies will only allow you to have a certain amount of debt compared to your income. Ideally, lenders will want to see your DTI ratio less than 36%. Some programs do allow a bit more, though. It’s important to remember that part of this DTI will include your new house note, which will consist of your principal, interest, PMI (if any), property tax, and homeowner’s insurance premiums.
How do I lower my DTI?
We get it. Life is not all sunshine and rainbows; you are just starting out. Debt happens. Usually, the culprit of high DTI is credit card debt, car notes, or student loans. If you have any of these types of debt, start paying them down. The less debt you have, the better, and on-time payments will help keep your credit score up! Speaking with a lender is helpful at this point as well. Sometimes they can tell you which lines of credit are more important to pay down and give you a clear plan to follow.
I used all my savings to pay down my debt!
Yep, this sometimes happens. You may be eligible for a Rural Development loan depending on where you are looking to buy and how much you make. Or, maybe you didn’t have a lot of savings to start with. Now what? 100% financing, baby!
I don’t qualify for a Rural Development loan.
Don’t despair! Other programs will allow gift funds. Maybe someone in your family can front you the downpayment. Downpayments can run from 3-5% down. Guess what? You DO NOT need 20% down to buy a home! Fortunately, mortgages are not a one size fits all.
What we suggest is that if you are remotely thinking about buying a house, contact a lender. Let them help guide you through the process. If you need a recommendation, let us know. We work with some of the most excellent lenders in our area and are happy to make an introduction.