When is the Best Time to Get a Mortgage?

Interest rates have been steadily dropping, and home prices have fallen slightly. Is now a good time to get a mortgage?

The answer isn’t quite as simple as you might think.

While it’s never a good idea to rush into buying a home to capitalize on low rates, waiting too long can have some risks, too. Next year, the housing supply could decrease, and home prices and rates could increase.

“The average house price in the United States is approximately $235,000, and this figure has increased dramatically over the last several decades,” says Scott Langdon from MoneyTaskForce.com. “While the actual cost of real estate in your area may differ dramatically from the national average, many home buyers need or prefer to finance their purchase with a home mortgage.”

So, when is a good time to get a mortgage?

Check Your Credit Score

In order to qualify for a mortgage with a low interest rate, you need to have good credit. If your credit score is poor, now is not the time to be applying for a mortgage.

Most lenders will use your FICO score to determine whether they should lend to you. FICO scores range from 300 to 850 – the higher, the better. 

Before you even think about applying for a mortgage, check your score. Many banks and credit card issuers now allow customers to check their score as a perk for doing business with them. 

If your score is low, you should take the time to work on improving it before you apply for a mortgage. 

Check Your Income

Are you financially ready to buy a home? Do you have stable income? A mortgage loan is 15 or 30 years, so lenders will look at your current income and your potential future income as well. 

Is your income stable and predictable? Are you likely to make more money in the future? How long have you been with your employer? 

You should be able to demonstrate at least two years of stable income, whether you’re self-employed or work for an employer.

Check Your Debt Levels

When applying for a mortgage, lenders will look at and consider your debt obligations. This is known as your debt-to-income ratio, and it’s a measurement of your monthly debt divided by your gross monthly income.

If your debt-to-income ratio is higher than 43%, now may not be the best time to apply for a mortgage. 

Lenders generally won’t extend mortgages to borrowers with debt-to-income ratios this high. In this case, it would be best to delay your home purchase until you’ve paid off some more debt and brought your ratio down. 

Check Your Savings

If you’re thinking of buying a home, it’s important to make sure that you have enough savings to maintain the home and you are well informed about the different types of mortgages. Funds are also needed for a down payment on the home. You can consult a mortgage broker if you want to know more about the different types of mortgages.

Prospective homebuyers should be able to put down a 20% down payment. A 20% down payment will allow you to avoid private mortgage insurance and help you qualify for better rates than if you were to apply with a lower down payment.