Do you ever sit around with friends and talk about crazy stuff you have done and laugh?
This past 4th of July, my friends and I sat around after shooting fireworks and talked about the crazy things we did many years ago.
You know all those stories that start out “You remember when”…
Amazing how the years have flown by but the laughs are just as loud now as they were then. Maybe you have settled down a little. Grown a little wiser. Stopped sowing your wild oats…
But there could be one crazy thing left that you have always wanted to do…
Buying a Home!
I am sure you have read plenty of articles that say buying a home is crazy. Your friends and family could be saying that buying a house is crazy.
What if I told you buying a home is NOT crazy?
Why would I say that home buying isn’t crazy? It all has to do with how homes are very affordable today!
Homes are more affordable now than almost any time in history. Take a look at the graph below from the September 2017 Black Knight Mortgage Monitor. It shows you the percentage of median income necessary to purchase a medium-priced home now compared to before the housing crash:
The percentage of income needed to buy a medium sized home is lower now than it was before the housing bubble and bust.
Black Knight also said that homes are more affordable today than back in the late 1990s in most of the country:
As you can see, buying a home is very affordable today. And this could make it the best crazy thing you ever do!
You could be thinking that it is crazy to buy a home because of how the banks are returning to the easy lending of the past. It is easier to get a mortgage now than it was last year.
And it is much easier to get a mortgage than it was after the housing market imploded…
The MBA’s Mortgage Credit Availability Index has improved over the last several years. In fact, in the last year:
- More buyers are putting less than 20% down to purchase a home
- The average credit score on closed mortgages is lower
- More low-down-payment programs have been introduced
This makes some people think we are seeing the too easy mortgage lending again. Let me explain why this is not true.
Check out the chart below that shows the Mortgage Credit Availability Index over the past 13 years:
It is pretty easy to see that mortgage standards were lax during 2004 to 2007. It has become easier to obtain a home loan since 2011 but we are NOT seeing a return of lax mortgage lending.
The Urban Institute also measures lending with their Home Credit Availability Index. According to the Urban Institute:
Measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates … it is easier to get a loan.
Check out this chart showing the Urban Institute’s Home Credit Availability Index:
As you can see, mortgage lending is not anything like it was before. But it is easier to get a mortgage than many people think.
All you need is decent credit…
But what if your credit isn’t too good?
How to Increase Your Credit Score Before You Apply for a Home Mortgage
There are lots of things that affect getting a mortgage. And the biggest is your credit score and your credit history.
Instead of getting a nasty surprise when you apply for a mortgage, here are some ways you can improve your credit:
Check Your Credit Reports
A lot of people who believe they’ve got bad credit are scared to check it. It is vital for a home buyer to check their credit before they start the home buying process. If there is anything wrong in your credit report, you can correct the errors before you apply for a home loan.
This is your opportunity to correct any errors that could mean you are rejected by the bank. This will have a huge effect on the final results of your mortgage application, the interest rate and how much you are approved for!
Make Your Payments On Time Every Time
It’s critical that you are making all payments on time every time to keep your credit healthy. Improving your credit score does not happen overnight. But after a few months of making the payments on time, your credit score will improve.
The mortgage company will want to know why you have any late payments so you MUST correct this behavior now!
Your credit history and score is a huge part of what lenders use to determine your financial health. This is why your credit score and history is so important when getting a home loan.
This is vital to getting the best rate and monthly mortgage payment. However, there are also some things you must avoid AFTER you apply!
Things You Must Not Do After Applying for a Home Loan
After you make sure your credit is strong, then it is time to talk to a lender about getting a Pre-Approval Letter. After you apply for a mortgage is a critical time.
Many home buyers make serious mistakes after applying for a mortgage. There are several things that could hurt your mortgage application.
If you have handed over your paperwork or are about to, here is what to avoid after applying for a mortgage:
Applying for or Acquiring New Credit
You may be thinking that getting a new credit card is no big deal. But let make it crystal clear that you MUST NOT apply for any new credit cards or loans. The thing is that this is a sign that you could be a high risk to the lender.
This is one of the most common mistakes that causes people to NOT be able to get a mortgage!
Keep Paying Your Bills On Time Every Time
Now is not the time to stop being responsible. If you’ve worked hard to improve your credit, why would you blow it now? Make sure you’re making all the payments on time so your credit isn’t harmed.
Closing Old Accounts
Some people believe closing old accounts is the right thing to do. Actually, this could have a negative effect on your credit rating. Closing accounts changes your available balances and increases your debt load. Leave accounts open until after you have closed on your new home!
Quitting or Changing Your Job
When you are buying a home is the wrong time to make any career changes. It is very rare that some can quit their job when they are getting a home loan. Changes in your monthly earnings can result in complications with your mortgage application.
If you own a business or are self-employed, there will be fluctuations in your income. A substantial change in what you earn can indicate to your lender that you’re not a solid bet.
There can be a lot of stress that comes along with the mortgage application process. Paying your bills on time can help you avoid negatively impacting your approval.
The Take Away
There is no doubt that homes are very affordable today. Mortgage rates are still super low. Getting a mortgage is easier than it was but it isn’t a return to the crazy mortgage standards of the past.
Home prices have risen since the housing crash. But with the low mortgage rates, it is possible that buying a home is much more affordable than you thought.
Like crazy affordable…
This does not mean you can forget reality or logic. You must set your maximum home price on a monthly payment that is very affordable for you.
You must allow extra for taxes, insurance, maintenance and repairs. You must hope for the best and plan for the worst.
If buying a home is one of the last crazy things that you want to do, now is a great time! Just remember to think logically and sensibly when you do the best crazy thing you can: Buying a Home!