Why can't I get a mortgage?
This is a great question when oftentimes we believe that we are pretty well off and could probably afford a mortgage payment more easily than we can rent! However, a bank is required in the process of a mortgage and it's usually very long-term (i.e. 15 year or 30 year loan to buy a house). This requires some good faith on the part of the bank in lending this money. A friend ask me this past week if I could help explain why he and his girlfriend could not get a mortgage. He began my telling me that she had better credit than he did and she had a really good credit score of almost 700... huh? Really good?!?! Well, let's start there... if you have a credit score under 700, I would not personally consider that to be really good. However, it will not necessarily preclude you from getting a mortgage; but, let's keep in on the 100 and not kid ourselves along the way.
I began to tell him that it is likely due to his income to debt ratio. He told me that the banker actually said something about that. I told him that they will have a certain ratio they will use to dictate whether or not a loan will be offered to you. If you do not meet this break-off point then you will likely not be offered the loan regardless of your credit score. I also began to tell him about my own personal situation. I have a credit score over 800 and have for years. However, Apple will not give me their new credit card because I have too much debt to my rate of income, according to them. Now, granted I do have a mortgage which is A LOT of debt on my liabilities and evidently Apple doesn't like that as a lot of people are getting the Apple Card without the financial position that I have (not bragging, because I don't really have anything to brag about, just keep it real).
All that to say, banks are not handing out mortgages anymore like the suckers they typically have up at the teller counters for everyone to enjoy. You have to have some good "numbers" that they can hang their hat on. So, do your homework prior to mortgage application. Get rid of some of your debt FIRST so that when you go into the bank, you have a higher income to debt ratio. Money in the bank is not going to help. Now, if you have a substantial down-payment, this can oftentimes cause eyebrows to raise; so, do your homework, find out about downpayment thresholds, income to debt ratios and go in armed and ready to GET THAT MORTGAGE!
Rent or Buy? That is the question!
I get questions often from readers about finances and how best to control debt. So, I thought I would start a series based on these questions. Today, the specific question I will address is:
Should I rent or buy?
There are a few things that one should consider when struggling with the question of whether to rent an apartment/townhouse/condo or buy a house/townhouse/condo. 1) Do you have enough to pay 20% down on a purchase? This has become even more important over the last several years as mortgage insurance is now permanent throughout the life of a mortgage if you do not initially put 20% down or refinance at some point throughout the loan. With interest rates at record lows right now, and these rates are likely only to go up, you probably will not want to refinance if you purchase at one of these record low interest rates. If you do not have enough to put 20% down on a purchase, it is the best option to rent until you are able to amass enough to put 20% down on a purchase. This will save you thousands in the long run on mortgage insurance premiums! 2) What is the real estate market where you live or are moving to? Is it growing? Are real estate prices increasing? This could prove to be a good investment opportunity if you are able to purchase in a growing market at a reasonable price. 3) Can you purchase cheaper than you can rent? Where do you want to live? Living downtown in a big city would likely mean you will be renting versus buying. Location! Location! Location! What will your daily commute be? Is traffic MAD?!?! Renting may be the way to go just for sanity sake! 4) How much space do you need? Can you get more "bang" for your buck in a house than an apartment? 5) Do you like "close" neighbors? Don't be fooled... Just because you buy a house and not rent, does not mean you are FREE from the meanderings of neighbors! A barking dog 50 feet away can be VERY annoying when the house next door decides to leave their dog out all day long! And, like family, you don't get to pick your neighbors.
The items above are just a few of the things that I have personally experienced regarding purchasing versus renting. Situations are always different for different people and every case is different. Each of us has to decide what is best for our particular situation. The items above are only meant as things for you to consider and think about when deciding whether you should RENT OR BUY!
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