Just when you thought the housing market couldnt get any tougher, it throws another obstacle at you.
Mortgages are getting more expensive.
Interest rates on mortgages just climbed over 6%, the highest theyve been in 14 years.
How Much House Can I Afford? Here’s How to Do the Math
Weve got four important tips for what you might do about it.
How High Are Mortgage Rates?
Thats more than double compared to this time last year, when it was 2.86%.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Thats $583 more each month.
Yes, $583 more per month!
Heres What you could Do About It
Buying a house just keeps getting harder and harder.
Once youve found a few interesting offers, its time to contact lenders directly.
PMI is generally required on any home loans when the buyer puts down less than 20%.
It can be tough to save up that big of a down payment.
Strive to reduce your expenses and increase your income.
If you cant hit 20%, put as much down as you comfortably can.
How Much House Can I Afford?
Heres How to Do the Math
3.
Improve Your Debt-to-Income Ratio
That sounds boring, doesnt it?
It can be important, though.
To get a loan, you oughta prove you might pay it back.
Lenders want proof that youre a responsible person who can pay back your debts.
Thats why theyll check yourdebt-to-income ratio, or DTI.
Thats your monthly debt payments compared to your monthly income.
Heres the basic formula for a debt-to-income ratio: your monthly debt obligations divided by your monthly pay.
Boost Your Credit Score
The higher yourcredit scoreis, the better deal youll get on your mortgage.
If youre looking to improve your score, try a free credit-monitoring service likeCredit SesameorCredit Karma.
(Theyll also pitch you credit card offers, which is how they make their money.
But avoid opening new lines of credit right now because that might affect your credit score.)
With a couple of strategic decisions, you could improve your credit, saving you thousands.
The Bottom Line
Heres the thing: Mortgage rates might not be done rising.
They might keep going up.
The Federal Reserve is talking about raising interest rates to combat inflation.
And happy house hunting.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.
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