If you are old enough to remember the economic implications brought by the Financial Crisis of 2008, you probably understand how vital home loan affordability is. After all, the Great Recession was triggered by the collapse of the American housing market.
Property prices dropped significantly because pieces of residential real estate were extremely overvalued. As a result, many mortgages turned upside down, and the options of delinquent homeowners to escape foreclosure were limited.
If you are planning to apply for a Utah housing loan in Ogden, Provo, Orem, Sandy, or Salt Lake City, it is imperative to identify the mortgages you can genuinely afford. Lenders have stricter criteria in place to weed out bad candidates, but they are imperfect. You also need to do your share to avoid the same fate of the unqualified borrowers who lost a ton of their wealth in another housing bubble forms again.
So, how can you narrow down the most sensible home loan programs for you? Below are the key things you should do.
Be Honest About Your Job Security
Generally, mortgage lenders want borrowers to have a job in the same position in the same industry for at least two years. Twenty-four months of consistent employment inspires confidence and evokes financial stability.
Changing careers, especially when your salary is likely to go down, before you apply for a home loan is not a bright idea. There is no telling whether you are going to succeed in your new line of work, and lenders are allergic to greater uncertainty since loaning hundreds of thousands of dollars to anyone is already a massive gamble.
While there are certain mortgages designed for unconventional workers, particularly those who belong to the gig economy, you should gauge how reliable your income is. If you do not see yourself making at least the same amount of money in the foreseeable future doing what you do now, you might want to think twice about acquiring a massive, long-term debt secured by a house.
Consider 36% Back-end DTI Ratio the Sweet Spot
The back-end debt-to-income (DTI) ratio represents the portion of your monthly income that covers all of your regular liabilities. They include the debts, like minimum credit card balances, as well as the child support and alimony obligations you expect to pay every month. Your estimated monthly mortgage payments (including tax and insurance) must be taken into account too.
The maximum back-end DTI ratio mot mortgage lenders are willing to accept is 43%, but it is better to keep yours around 36%. This way, you have enough room in your income to take care of your other bills and avoid having past-due mortgage payments.
Make a List of Your Assets
A good mortgage borrower has enough liquid assets on tap to cover future monthly payments despite going jobless. You also need to shell out for the down payment and closing costs. There are ways to keep your out-of-pocket expenses to a minimum, but your ability to handle most of what they are worth upfront says a lot about your capacity to manage mortgage repayment.
Your desire not to get behind with your mortgage payments should be stronger than your ambition to be a homeowner. If you really can’t buy a house right now, taking shortcuts to achieve homeownership will not likely not end well for you.