Buying a home may not be as out of reach as you think, even in this market. Here’s how to become an owner
By Yang Yang
Senior Mortgage Advisor, JPMorgan Chase & Co.
Buying a home is one of the most important purchases you will make in your lifetime, and the pressure is mounting for those looking to buy right now, with fluctuating home prices and mortgage rates at their peak. highest level for more than a decade.
While existing home sales have fallen month-over-month since the start of the year, prices still hit a record high above $400,000 in May, according to the National Association of Realtors, as Low housing inventory levels and supply chain constraints have created tight affordability for homebuyers. Mortgage rates have nearly doubled in the past six months, from 3% in 2021 to nearly 6% in 2022, making it increasingly difficult for many Americans to buy a home, especially for those with limited incomes.
So how do you know you’re ready to buy a home? More importantly, how much house can you afford? We sat down with Yang Yang, Sr. Home Lending Advisor at Chase, to answer these questions and discuss what the current state of the market means for you and your family’s buying dreams.
Q: What are the main factors considered by mortgage lenders when evaluating an application?
Yang-Yang: When it comes to home ownership, your credit score and debt-to-equity ratio are important factors in the application process.
Your credit score is based on how much credit you have used or not used in the past. Using credit responsibly, such as paying bills on time and having a low utilization rate, will result in a higher score. Higher credit scores can help you qualify for the lowest interest rates. A score of 700 or more is generally considered good.
Additionally, lenders look at your debt to income ratio. It’s a simple equation of the amount of debt you have versus the money you earn.
Borrowers with a higher debt-to-equity ratio are considered riskier, while a lower debt-to-equity ratio can get you the best rates on your home loan.
Q: What are some tips for improving your credit score?
AA: There are a number of things you can do to improve your credit score, starting with reviewing your credit reports to understand what might be working against you. You can also repay your revolving credit and dispute any inaccuracies.
Plus, there are services like Chase Credit Journey to help you monitor and improve your credit score. Credit Journey monitors all of your accounts and alerts you to changes in your credit report that may impact your score. You’ll receive an alert whenever Chase sees new activity, including charges, account openings, and credit inquiries. Chase will also notify you if there are any changes to your credit usage, credit limits or balances. You don’t have to be a Chase customer to take advantage of Credit Journey.
Q: What factors can affect the cost of a mortgage?
AA: Several factors should be considered when considering mortgage options, including loan term, interest rate, and loan type. Prospective buyers should contact a mortgage professional to understand and review the options available to them.
For example, there are two basic types of mortgage interest rates: fixed and adjustable. Although adjustable rates are low initially, they can change over the course of a loan, so your mortgage payments can fluctuate. The term of the loan indicates how long you have to repay the loan. Many buyers tend to opt for a 15 or 30 year mortgage, although other terms are available. A longer loan term usually means you’ll have lower monthly payments, but pay more interest over the life of the loan. A shorter loan term may come with higher monthly payments, but you’ll likely pay a lot less interest over time.
Q: What are the costs of home ownership beyond the monthly mortgage payment?
AA: People often think of the down payment and the monthly mortgage, but buying and owning a home comes with additional costs. Closing costs, for example, can be up to 3% or more of the final purchase price. Other factors that could add to your monthly payments are property taxes, home insurance, and homeowners association (HOA) fees. To get an idea of what this might look like for you, use a financial capability calculator.
While there’s no way a buyer can completely avoid paying these fees, there are ways to save on them. Some banks offer financial assistance to homebuyers. For example, Chase’s Homebuyer Grant offers up to $5,000 that can be used for a down payment or closing costs in eligible neighborhoods across the country. There may also be homeowner or down payment assistance available in your city or state. Contact a mortgage advisor to learn more about the resources you may be eligible for.
To dive deeper into this topic, our Newbie to Buyer podcast – episode three, “How Much Can I Afford?” is a great resource for potential buyers to get all of their home buying questions answered (chase.com/personal/mortgage/beginner-to-buyer).
Learn more about the home buying process by visiting chase.com/personal/mortgage/home.
Sponsored content from JPMorgan Chase & Co.