Real Estate Trends: Running the Numbers

Home sales in 2020 were the highest level in 14 years. The super low interest rates and a pandemic that had all of us looking hard at the space we call home brought on robust sales.

If you are trying to run the numbers about whether you can improve your living location, a little time on the following numbers can help you check the yardstick measure about where you are. Knowing these numbers can give reassurance that you are ready for a move or give help to what needs to be done to qualify for the mortgage you desire.

Of course, keep in mind that running the numbers and not just the application is what any good mortgage advisor does on a daily basis. If you don’t have such a person, finding an advisor can greatly help improve the ability you have to qualify for the best financing.

The first most-important number that you and your mortgage advisor will consider is your monthly cash flow. Cash flow shows that you have the financial stability to adjust as household demands occur. To find your monthly cash flow number, add up all of the monthly income that your household has. Then, make a list of your monthly expenses. It’s important to list the expenses, because listing them gives an opportunity to see if changes can be made to present your cash flow more positively. Expenses include food and payments you make each month.

You want to see a positive number on the cash flow side. If you are spending more than you have coming in, you have two choices. One choice is to reduce spending, but the other is to increase income.

The next number that I encourage you to review is your credit score. The higher the credit score, the better loan terms that you can qualify for. A higher score also allows you to obtain lower insurance premiums. Each of us can get a free copy of our credit score from many different sources. If you don’t typically pay attention to the due dates of your bills, it’s a great opportunity to prepare a schedule of bills to pay each month according to due dates. Paying your bills on time greatly helps your credit score. As you make payments, seek to have a goal of having balances below 30 percent of each account’s limit.

The third number to find is your debt-to-income ratio. This number is calculated by adding your monthly debt payments and dividing it by your monthly gross income or income before taxes are taken out. Usually it is best to have a debt-to-income ratio of less than 43 percent.

The fourth number to seek out is the highest interest rate you have on any debt. This number gives you the best focus on what to reduce first as an expense. If you have an 18 percent interest rate on a credit card, you have the equivalent of enjoying an 18 percent return on your money, if that debt is paid off.

Typically the only cost is time when meeting with a mortgage advisor. Virtual appointments are easier than ever and offer the flexibility that most people need right now. Call or email MPattullo@PeakMtg.com

We lend where we live,

Mike