3 Ways to Use Your Stimulus Check to Own a Home
If you are one of the 90 million people who are eligible for the third round of stimulus checks, you might be wondering what are the best ways to save, invest or spend these funds based on your financial goals. If owning a home is a personal ambition you want to achieve, here are three tips on how your stimulus check can help!
Pay Off Some of Your Debt
Your debt-to-income ratio, or DTI, plays a large role in whether you qualify for a mortgage, and it helps lenders decide how much you can borrow. Simply defined, it is the percentage of your income that goes toward paying your monthly debts. To calculate your DTI, divide your monthly debt costs by your monthly income. The lower your DTI, the better, and an ideal DTI ratio is 36% or less.
If you feel like your DTI is too high, you can take steps to reduce it by making extra payments on some of your debt accounts to lower your monthly costs and avoiding taking on more debt. Additionally, if you want to qualify for a higher loan amount, paying down some of your debt will make that goal even more attainable. Paying off debt and keeping credit card balances low will also improve your credit score which can help you secure a lower interest rate.
Add Your Stimulus to Your Savings Fund
A home mortgage is the biggest financial investment you will make in your lifetime, so it’s not surprising that saving for a down payment can be a major hurdle for people on their journey to home ownership. While a 20 percent down payment is ideal, most people pay less. In fact, according to the National Association of Realtors, the average down payment among first-time buyers was about 10% in the fall of 2020. There are even loans options that do not require a down payment at all! At any rate, applying your stimulus check towards your savings can move you closer towards owning a home.
Use It Towards Closing Costs
Whether you are refinancing or buying, you will have to pay closing costs. Typically, closing costs can range from 2% to 5% of the loan and include property taxes, mortgage insurance and more. Closing fees vary depending on your state, loan type, and mortgage lender, so it is important to pay close attention and budget for these fees.
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