Because the housing market remains in the doldrums, there are plenty of bargains to be had in the housing market. However, after the excesses of the past and the beating that they had taken, lenders are far more cautious in providing new mortgages to people looking to invest in real estate in Longmont Colorado. Real estate agents will hasten to advise you that you are ready for a house and that you can afford it. But only you will know your true financial position and your spending habits and are therefore in a position to determine whether you’re ready or not.
Here is what you need to do:
- calculate your debt to income ratio to see how much extra debt you can take on affordably.
- calculate your net worth that is the excess of your assets over your liabilities and make sure that you are in comfortable territory.
- a copy of your latest credit scores from all three credit bureaus and examine the details critically.
If there are any inaccuracies that are adversely affecting your score, have these promptly corrected. If there is anything unfavorable such as missed payments or delayed payments, see if you can sort this out amicably. If your credit score is not in good shape, then don’t apply for a mortgage. It is not as if you may not find willing lenders, be prepared to pay through your nose for the privilege of a loan. You may end up paying interest for instance a few percentage points higher than you might have otherwise done. Over the life of a mortgage, this could amount to a substantial sum of money.
Now ask these questions about yourself:
- do I have a steady and reliable source of income?
- am I financially responsible and in control of my debt?
- do I understand the full financial implications of home ownership?
- do I have enough money to cover down payments, closing costs and other expenses incurred in house buying?
- will I have enough money left over to sustain my normal lifestyle?
- are my wife and I carrying sufficient insurance?
Now that you are satisfied that you are ready, you can go hunting for a mortgage. The following three things are critical to a mortgage:
- your credit score. Aim at a FICO score of at least 700 so that you can obtain reasonable terms for a mortgage. There are plenty of ways in which you can improve your credit score so start immediately.
- your down payment. Unless you can make a down payment of at least 20 percent, your lender is going to stipulate private mortgage insurance which will add the cost of your borrowing.
- your debt to income ratio. Potential lenders will want to see that you can cover the costs of home ownership including mortgage and PMI payments and still have cash left over. The ratio must be below 20 percent before you apply for your mortgage and preferably around 10 percent. A rule of thumb is the 28/36 percent. In other words, all your housing related payments must not exceed 28 percent of your income and your total debt must not exceed 36 percent.
You can get a local real estate agent in Aurora CO or Brighton Colorado to help you find a reputed mortgage lender, but you must have a credit rating to be able to get the best bargain.
