How to qualify for your first mortgage.

There's a famous saying that goes, "Buy some land, God ain't making any more." This statement is quite true because land is a limited resource. We can't make any more land like the federal reserve can print more dollars. In this post, I want to share how you can get your finances ready to purchase your first investment property or home.

If you're on the financial freedom journey and have begun budgeting and getting your financial life in order, you have definitely taken a look at your credit and are aware of any derogatory markers you may have on your credit. The first step is to work on your credit. List all your consumer debts from the smallest loan to the largest and write the interest rate next to the loan amount (using excel makes this step easier). Now devise a plan on how you would tackle your debt. I prefer my clients to use a hybrid of the "debt snowball" and "debt avalanche" methods. Focus on a few small debts to get some momentum, however, laser focus on the loan with the highest interest and pay a little more after paying the minimum payment on all your other debts. Do this monthly until all your consumer debts are paid off. Devise a plan for your student loans as well, either refinance your student loans to a longer-term like 10-20 years or research if you qualify for the public service loan forgiveness (PSLF) program. This program will forgive the remainder of your student loans after making 120 qualified payments while working for a non-profit organization or 501-c-3. There are other income based repayment programs which will forgive the remainder of your loans after 20-25 years, however taxes will be due on the amount forgiven. **Most people who use this method, invest in a taxable brokerage account for the "tax-bomb".

Once your consumer debts are paid off and you have a plan for your student loans, you can then get pre-qualified with a mortgage lender. I recommend shopping around for the best lender who offer incentives like decreased fees and credits toward your home.

Another important factor when looking for a mortgage is the term of the loan. Some financial "gurus" recommend a 15-year fixed mortgage, however, as a young 20 or 30-year-old, you do not want to be house-poor after paying your mortgage every month. You want to be able to invest in other cash-flowing assets such as stocks, index funds and cryptocurrency. Hence, my recommendation is to always go with a 30 year fixed mortgage. With current mortgage rates being really low, there is no reason to lock yourself into a 15 year fixed mortgage. Your monthly mortgage should be approximately 25% of your gross income. In addition, after your 30-year-fixed mortgage is in place, you can always pay a little more towards your mortgage and simply treat your mortgage like a 15-year-fixed mortgage. In case an emergency arises, you are always free to not pay more on your mortgage and use your extra cash appropriately.

Cheers,

Dr. B.