Here’s why home ownership can be a good goal.
The benefit of renting a home is short-term predictability. As long as your lease is valid, it’s easy to settle your monthly housing costs – you write out your rent check and name it a day. When you own a home, you run the risk of extra maintenance, surprise repairs, etc rising property taxes add to your cost.
New data from ATTOM Data’s Rent Affordability Report 2021 shows that despite these risks, owning a home is still more affordable than renting in nearly two-thirds of the country’s housing markets. In particular, owning a three-bedroom house at the median price is cheaper than renting a three-bedroom property in 572 US counties (although renting is cheaper than buying in 18 of the nation’s 25 most populous counties).
If you’re interested in reducing your housing costs, becoming a homeowner could be your ticket. Here are some things you can do to increase your chances of getting a mortgage approved and joining the ranks of US homeowners.
1. Have a solid credit history
A strong credit score can help you get approved for a home loan, but it can also help you get the best interest rate on a mortgage. You need a score of at least 620 to be approved for a traditional loan, but for the best rates you can score as high as 700 or higher. You can do this by paying upcoming bills on time, paying off some credit card debt, and correcting any errors that may exist on your credit report.
2. Limit your debt
Mortgage lenders want to see that you aren’t overwhelmed with other debts before they lend you money, so it helps to reduce existing loans or credit card balances before you apply for a home loan, especially if they’re significant. While you may not be able to pay off all of your debt, for example, if you can pay off your car a few months early, that’s one less financial obligation standing in the way of paying a mortgage.
3. Secure a permanent job
Lenders want peace of mind that once you get a mortgage, you can keep up with your monthly payments. It helps to have a stable, steady source of income for your application. If you’re self-employed and have variable income, try to get some contracts. This is a great way to show a lender it’s you do have a certain guaranteed income.
4. Save for a sizable down payment
By depositing 20% of the home purchase price, you avoid private mortgage insurance, or PMI, a costly premium on top of your regular mortgage payments. But that’s not the only reason to approach your mortgage application with healthy savings. Lenders also want to see that you have assets that you can access in case you lose your job and don’t have a paycheck for a while. As you increase your savings, you are more likely to be approved for a home loan.
While owning a home may not be cheaper than renting in any US housing market, it is for most of the country. If you’re looking to buy a home, do whatever it takes to make yourself a solid mortgage candidate. Remember – if you own your own home, you can also benefit from certain tax breaks that renters don’t have, so there are many good reasons to buy your own home.
A historic opportunity to potentially save thousands on your mortgage
Interest rates are unlikely to remain at multi-decade lows much longer. That’s why it’s crucial to take action today, whether you’re refinancing and cutting your mortgage payment or ready to pull the trigger on a new home purchase.
The Ascent’s in-house mortgage expert recommends this company find a low interest rate – and in fact he’s used them to refect himself (twice!). Click here to learn more and see your plan. While this doesn’t influence our opinions about products, we do receive compensation from partners whose listings appear here. We are always by your side. See The Ascent’s full advertiser disclosure here.