Justin Cotton, Chase's Senior Home Lending Adviser

Buying a home is one of the most important purchases you will make in your lifetime, and the pressure is mounting for those looking to buy right now, with home prices fluctuating and mortgage rates at their highest levels in over a decade.  

While existing home sales have fallen month-over-month since the beginning of the year, prices still hit a record high above $400,000 in May, according to the National Association of Realtors, as low levels of housing inventory and supply chain constraints have created an affordability squeeze for homebuyers. Mortgage rates have nearly doubled in the last six months – from 3% in 2021 to close to 6% in 2022 – making it increasingly challenging for many Americans to purchase a home, especially for those with limited income. 

So, how do you know when you’re ready to buy a home? More importantly, how much home can you afford? We sat down with Justin Cotton, Senior Home Lending Advisor at Chase, to answer those questions and discuss what the current state of the market means for you and your family’s homebuying dreams. 

Q: What are the main factors mortgage lenders look at when evaluating an application? 

Justin Cotton: Your credit score and debt-to-income ratio are major factors in the application process. 

Your credit score is set based upon how you’ve used credit, or not used credit. For example, do you pay bills on time? Higher credit scores can help you qualify for the lowest interest rates. A score at 700 or above is generally considered good.

Additionally, lenders look at your debt-to-income ratio. This is a simple equation of how much debt you have relative to how much money you make. Borrowers with a higher debt-to-income ratio are considered more risky while a lower debt-to-income ratio may allow you to qualify for the best rates on your home loan. 

Q: What are some tips for improving your credit score?

Justin Cotton: Starting with reviewing your credit report to understand what might be working against you. You can also pay down 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 impact your score. You’ll get an alert any time Chase sees new activity, including charges, account openings and credit inquiries. Chase will also notify you if there are changes in your credit usage, credit limits or balances. You don’t have to be a Chase customer to take advantage of Credit Journey.  

Q: What are some factors that can affect the cost of a mortgage?

Justin Cotton: There are two basic types of mortgage interest rates: fixed and adjustable. While adjustable rates are initially low, they can change over the course of a loan, so your mortgage payments may fluctuate. Loan term indicates how long you have to pay off the loan. Many homebuyers tend to opt for a 15-year or 30-year mortgage, though other terms are available. A longer loan term generally means you’ll have lower monthly payments, but you’ll pay more in interest over the life of the loan. A shorter loan term may come with higher monthly payments, but you’ll likely pay much less in interest over time.

Potential homebuyers should contact a home lending professional to understand and review the options available to them.

Q: What are the costs of homeownership beyond the monthly mortgage payment?

Justin Cotton:  People often think of the down payment and monthly mortgage, but buying and owning a home carries additional costs. Closing costs, for example, can amount to up to 3% or more of the final purchase price. Other factors that could add on to your monthly payments are property taxes, homeowner’s insurance, and homeowner’s association (HOA) fees. To get an idea of what this may look like for you, use an affordability calculator

While there is no way for a buyer to completely avoid paying these fees, there are ways to save on them. Some banks offer financial assistance for homebuyers. As an example, Chase’s Homebuyer Grant offers up to $5,000 that can be used toward a down payment or closing costs in eligible neighborhoods across the country. There may also be homeowners’ or down payment assistance offered in your city or state. Contact a Home Lending Advisor to learn about resources you may be eligible for.  

For a deeper dive into this topic, Chase’s Beginner to Buyer podcast – episode three, “How Much Can I Afford?” is a great resource for prospective homebuyers to get answers to all their homebuying questions.

Learn more about the homebuying process here.

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