By the time most Americans are in their 20s or 30s, they are anxious to take part in the “American Dream” by purchasing their own home. And unless they’ve hit the lottery, they will need a mortgage to make that happen.
Here are three important steps to take early in life to make sure you will be approved for that mortgage down the road.
1.) Apply for and use (but don’t abuse) credit cards. When you apply for a mortgage, a bank is going to look at your credit history. If you don’t have a credit history, it’s not going to be to your advantage. You don’t want a lot of cards - one to three will do - but make sure that you use them and don’t abuse them. If you ring up high debts on your cards that you will be paying back forever, that won’t help your situation. Charge what you know you will be able to pay off at the end of the month. A credit history that shows a couple of credit cards that are paid off each month will make any banker or mortgage broker smile.
2.) Have a stable job. If you jump from job to job each year (or even worse...career to career), the bank may feel a bit uneasy. Why? Well, after the bank loans you the money for your house, who’s to say that you won’t be leaving your current job soon? The bank needs to make sure that the money they are about to loan you will be paid back. There’s a higher risk for them if your employment is unstable from year to year.
3.) Save for a down payment. You don’t necessarily need to have a ton of money in the bank in order to get a mortgage loan. In fact, your job status and credit history are far more important. But, unless the bank is running a 0% down special, you will need to put some money down towards the house before they will give you a loan. 20% of the purchase price is standard, but there are often specials where you can put down as little as 10%, or even 5%. Obviously, though, the more you have saved, the better off you’ll be.
A home is probably the biggest purchase you’ll ever make. And without a bank’s help, that purchase may never happen. But if you prepare early in life and establish yourself as a “good risk,” making the “American Dream” a reality in your life should not be a problem.
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