Owning a home is a big step, and preparing for a mortgage can feel overwhelming. But don’t worry-you’ve got this! By following these key steps, you can set yourself up for success on the path to homeownership.
Becoming Mortgage Ready
Steps to Prepare for Homeownership
1. Show a Steady Source of Income
💰 What counts?
Your income can come from wages, self-employment, Social Security (SSI or SSDI), or pension benefits. In some cases, reliable child support or alimony may also be considered. However, lenders usually don’t count temporary income, like unemployment benefits, when approving a mortgage.
🔎 Why it Matters:
Lenders want to see that you have a consistent income to ensure you can make mortgage payments in the long run.
2. Keep Debt Low-Aim for 10% of Your Income
💳 How much debt is too much?
Try to keep your monthly debt payments (such as car loans, credit cards, or student loans) to 10% or less of your monthly income. This will help ensure you can comfortably afford a mortgage.
📊 Guidelines for an affordable mortgage:
No more than 30% of your income should go toward your mortgage.
No more than 43% should go toward all your combined debts (including your mortgage).
Ideally, non-mortgage debt should stay at 10% or less of your income.
🔎 Why it Matters:
A lower debt-to-income ratio makes it easier to qualify for a mortgage and avoid financial strain.
3. Build Your Credit Score to 640 or Higher
📈 How to improve your credit score:
- Pay bills on time (rent, insurance, utilities, etc.).
- Reduce outstanding debt.
- Avoid opening too many new credit accounts.
- Check your credit report for errors.
✅ Don’t have credit history?
Some lenders will accept alternate credit history, such as a track record of on-time rent and utility payments.
🔎 Why it Matters:
A credit score of 640 or higher improves your chances of getting approved for a mortgage with better terms.
4. Have Some Savings Set Aside
🏦 How much should you save?
Experts recommend having at least 3 months’ worth of expenses in an emergency fund. If your monthly expenses are $2,000, aim for at least $6,000 in savings.
💡 Good news!
If you’re a low-income buyer, you may qualify for down payment assistance or a matched savings program. Some lenders also offer zero-down-payment options.
🔎 Why it Matters:
A financial cushion helps cover unexpected costs and ensures you’re prepared for homeownership.
5. Take a Homebuyer Education Course
🎓 Why take a class?
- A first-time homebuyer class can teach you about:
- The mortgage application process
- Budgeting for homeownership
- Understanding interest rates and loan options
- Avoiding common pitfalls
Many local agencies offer free or low-cost homebuyer education and counseling more information can be found here.
🔎 Why it Matters:
The more you know, the more confident you’ll feel navigating the home-buying process!
Tillamook County Habitat for Humanity is an equal opportunity provider. We are committed to the letter and spirit of American policy for equal housing opportunity across the country. We encourage and support an affirmative marketing and advertising program where there are no barriers to obtaining a home due to race, color, religion, gender, disability, familial status, or national origin. We also do not discriminate because all or part of the applicant’s income is derived from public assistance programs.