Over 57 percent of Millennials polled in a recent survey claimed the main source of their stress was finances. Finding a way to get a handle on your finances can help you greatly in the future.
In order to purchase a home, you will need a good credit score and down payment. The following are some of the money mistakes to avoid if you are in the market to buy a home in the near future.
Too Many Hits on Your Credit Score
Applying for credit and getting denied or even defaulting on your existing debts can come back to haunt you when trying to get approved for a mortgage. In most cases, buyers who have a credit score below 700 will run into a few problems during the home loan application process.
Generally, the lower your credit score is, the higher the monthly payment on your mortgage will be. Finding out about what your FICO score is can help you see if any improvements need to be made.
Even if you have defaulted on debts, working out a payment arrangement with the lender is essential. This will help you get back on good financial footing, which will help you improve your credit score in the long run.
An Imbalanced Debt to Income Ratio
Mortgage lenders also take a good hard look at an applicant’s debt to income ratio. If this ratio is too high, it will usually lead to an applicant getting denied.
Rather than worrying about things like how long does it take to buy a home, you need to focus your energy on getting every aspect of your personal finances whipped into shape.
If the balances on your credit cards are extremely high, pay them down before you apply for a mortgage. Most lenders prefer an applicant’s debt to income ratio be no higher than 35 percent.
Irregular or Inconsistent Income History
If you have had a hard time keeping a job for more than a few months, getting approved for a mortgage is going to be extremely difficult. A lender wants to make sure your income is steady enough to consistently afford a house payment.
Even if you do get through the initial mortgage approval phase with a spotty employment history, you are probably going to pay a much higher interest rate due to your “high-risk” status. The only way to fix this issue is by working the same job for a while before you apply for a mortgage.
Failing to Save Money
If you are like most people, you work very hard for the paycheck you receive. Instead of throwing this money away on frivolous expenses, you need to find a way to save.
When the time comes to buy a home, you can lower your monthly mortgage payment by putting a fair amount of money down. Without a great deal of discipline and a singular focus on buying a home, saving money will be very difficult. Consulting with a financial advisor can help you devise an adequate plan for saving a down payment.
While making money mistakes is quite common for young people, learning from these mistakes is key. Once you have made a blunder with your finances, taking a look at what caused this sequence of events to occur is beneficial. These experiences can teach you what not to do in the future with your money.