- Your credit score is moving in the right direction.
- You’ve identified a down payment and monthly mortgage payment you can afford.
- Savings are growing quickly so it looks like you’ll achieve that golden goal for a down payment.
Next, you’ll want to take a look at your Debt-to-Income ratio. There are many mortgage types and each one will have a specific set of requirements. Therefore you should be working with a loan professional, consultant or officer. Generally, an excellent Debt-to-Income ratio is 25% or less. That means no more that 25% of your monthly income goes to monthly payments for outstanding debt, ie – credit cards, student, car and other loans. Don’t forget to include alimony, child support or any other monthly payments in your budget. Utilities and rent are not part of this calculation.
Most important, when you’re in Home Buying Prep Mode, know that taking out any loans for purchases, ie. furniture, school, vehicles or jewelry will reduce (and possibly eliminate) your loan capabilities. Yes, taking out a loan and paying it off early can be a great way to build your credit score, however, be sure it’s in the right time frame for your home purchase. As always, consult with your loan professional for the best advice!