Yang Yang
Yang Yang
JPMorgan Senior Home Loan Advisor
Buying a home is one of the most important purchases of your life, and for those looking to buy right away, pressure is mounting, home prices are fluctuating and mortgage rates are at their highest levels in more than a decade.
Although existing-home sales have declined month-over-month since the beginning of the year, prices still hit a record high of more than $400,000 in May due to low housing inventory levels and supply chain constraints, according to the National Association of Realtors. Affordability for homebuyers is being squeezed. 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 incomes limited people.
So, how do you know when you’re ready to buy a home? More importantly, how much house can you afford? We sat down with Chase’s senior home loan advisor, Yang Yang, to answer these questions and discuss what current market conditions mean for you and your family’s home buying dreams.
Q: What factors do mortgage lenders primarily consider when evaluating applications?
Yang Yang: When it comes to homeownership, your credit score and debt-to-income ratio are major factors in the application process.
Your credit score is set based on how you have used or not used credit in the past. Responsible use of credit, such as paying bills on time and low usage will result in higher scores. A higher credit score can help you get the lowest interest rates. A score of 700 or above is generally considered good.
Also, lenders look at your debt-to-income ratio. It’s a simple equation of how much debt you have versus how much money you make.
Borrowers with higher debt-to-income ratios are considered riskier, while borrowers with lower debt-to-income ratios may qualify for the best home loan rates.
Q: What are some tips for improving your credit score?
YY: There are many things you can do to improve your credit score, starting with reviewing your credit report to understand what may be working against you. You can also pay off your revolving credit and dispute any inaccuracies.
Additionally, there are services like Chase Credit Journey to help monitor and improve your credit score. Credit Journey monitors all of your accounts and alerts you to changes in your credit report that may affect your score. You’ll receive alerts whenever Chase discovers new activity, including charges, account opening, and credit inquiries. Chase will also notify you if your credit usage, credit limit or balance changes. You don’t need to be a Chase customer to take advantage of Credit Journey.
Q: What factors affect the cost of a mortgage?
YY: There are several factors to consider when reviewing mortgage options, including loan term, interest rate, and loan type. Potential home buyers should contact a home loan professional to learn about and review the options available to them.
For example, there are two basic types of mortgage rates: fixed and adjustable. While adjustable rates are initially low, they can change during the loan process, so your mortgage payments may fluctuate. The loan term indicates how long it will take you to pay off the loan. Many homebuyers tend to opt for a 15- or 30-year mortgage, but other terms are also available. A longer loan term usually means your monthly repayments are lower, but you will pay more interest over the life of the loan. Shorter loan terms may result in higher monthly repayments, but you may pay much less interest over time.
Q: What is the cost of owning a home in addition to monthly mortgage repayments?
YY: Down payments and monthly mortgages are often what people think of, but buying and owning a home comes with additional costs. For example, settlement costs can be as high as 3% or more of the final purchase price. Other factors that may increase your monthly payment are property taxes, homeowners insurance, and homeowners association (HOA) fees. To see what this might look like for you, use an affordability calculator.
While buyers can’t avoid paying these fees entirely, there are ways to save on them. Some banks offer financial assistance to homebuyers. For example, Chase’s Homebuyer Grant provides up to $5,000 in funding that can be used to cover down payments or closing costs in eligible communities across the country. Your city or state may also offer homeowner or down payment assistance. Contact a home loan advisor to learn about resources you may be eligible for.
For a deeper dive into the topic, episode three of our Beginner to Buyer podcast, “How Much Can I Afford?” is a great resource for potential home buyers to get answers to all their home buying questions (Chase.com/personal/mortgage/beginner-to-buyer).
Learn more about the home buying process by visiting Chase.com/personal/mortgage/home.
Sponsored content by JPMorgan Chase & Co.
