Do you want to upgrade your home to a significantly larger one? Whether it's your dream home or just a way to better enjoy all your hard work building financial independence, a luxury house is something most people want but few may be able to afford. How can you know if you're in a good position to level up your housing? Here are five indicators to discuss with your financial planner.
1. A Good Debt to Income Ratio
Your debt to income ratio is the percentage of household income that goes toward paying debt each month. Many lenders want a maximum debt to income ratio of 36% in order to qualify for a good mortgage. However, the lower your ratio, the better position you're in to take on a large new mortgage.
2. Meeting Other Investing Goals
Examine how you're doing on financial goals that involve saving and investment. A valuable piece of real estate can be a good investment, but it shouldn't take the place of other forms of investment, including retirement and a good balance of investment types and risks.
3. Low Bad Debt Levels
While analyzing your debt to income ratio, think about each type of debt and what it brings to your overall financial plan. Good debt is debt that increases your net worth, while bad debt takes away from it. A strong candidate for an upgraded home may want to minimize bad debt and be sure they're using good debt smartly.
4. A Solid Credit Score
Your credit score will have a big impact not only on qualifying for a jumbo mortgage but also on getting the best terms. Look at your credit score with your financial planner to identify its strengths and how you can boost it to secure the best deal on a loan.
5. Sufficient Cash Reserves
You don't want to accidentally become house poor, meaning a large portion of your wealth is tied up in this one asset. Healthy cash reserves throughout your finances — including cash accounts, cash-like instruments, and easily-accessed portfolio investments — mean you can cover increased living costs and unexpected emergencies without resorting to risky measures.
Want help determining your readiness to move up in the world of real estate? Start by meeting with a wealth management company, such as Horan, in your state. They'll help you design and execute a plan that provides the budget you need while keeping your financial future safe. Call today to make an appointment.Share