Buying a house, for the most part, is a huge financial undertaking. It involves obtaining financing through a mortgage, which requires a number of qualifications to get approved for. This involves looking into your credit score, down payment, and debt-to-income (DTI) ratio, not just to find out If your eligible for a loan, but also to determine how much mortgage you can qualify for.
As paying for a mortgage can go on for several years (depending on the loan term you choose), it is only important to make sure that you can comfortably afford the monthly bill that goes along with the size of your loan. Living below your means is also an essential factor, as engaging on the contrary (living beyond) could land you in financial troubles and hurt your ability to pay the loan.
Home loan companies in Utah County share some of the signs you might be living beyond your means:
You have a bad credit score.
A credit score below 600 demonstrates that you are not financially responsible. Keep in mind that while your score is only a number, it shows your ability to repay any debt, which is an important qualification in getting approved for a mortgage. While there may be lenders that can approve your application with a poor score, it is likely for the loan to come with higher interest rates.
You are saving less than 5% of your income.
If only less than 5% of your income goes into your savings, you are likely spending too much and living beyond your means. This could also put you in real financial danger in an event of an emergency like a job loss, calamity, or medical problems. You may also have to take in more debt to pay for other necessary expenses. One good approach to saving and budgeting is following the 50-20-30 rule.
More than 28% of your income goes to house payments.
If more than 28% of your income goes to monthly mortgage, insurance, and taxes, you are likely to experience financial stress in the future. Experts note the 28% is the magic number, as this is the average at which most people can make their loan payments, while still being able to maintain a good standard of living. Sure, getting by is still possible even if you spend more than 28% on your home, but this is not necessarily an ideal financial situation.
Your debts are piling up.
You are definitely living beyond your means if you can’t pay up your monthly bills to the point that they start to pile up. The same is also true if your income is being parted to pay for a number of unnecessary things and services. If you cannot properly handle your financial obligations, mortgage companies won’t approve your application. You will then have to cut back on other expenses to prevent your debts from spiraling out of control.
You run out of money before payday.
Running out of money before your next payday arrives means that you have a cash flow problem and no savings. The only way to fix this is to sacrifice and cut back. It is a good idea to monitor your money as you spend it to find out where you are overspending. You can keep a spending diary and adopt small lifestyle changes that can help you save money.
Don’t sabotage your home ownership plans by living beyond your means. Start taking control of your finances and talk to a reliable lender to find out how you can make yourself an attractive mortgage candidate.