What to know before applying for a mortgage in this market.
How Total Quality Lending is different.
Start Planning As Soon As Possible
Buying a home is one of the most important financial decisions you’ll ever make. It’s also the most excited as your making the transition into a home that’s truly yours. With a new home comes a few expenses, which is why the majority of homeowners rely on mortgages to finance their home.
Applying for a mortgage can be overwhelming and very stressful if you’re not familiar with the home loan process. To make the process slightly easier we’ve provided a list of helpful “to-dos” you can use to improve your chances of qualifying for a mortgage.
Mortgage Tips For Homebuyers
Purchasing a home isn’t a decision you make on a whim. You need to thoughtfully plan and determine how much down payment you can afford and the monthly mortgage payments you are comfortable with to determine the type of mortgage you choose.
It’s a good idea to connect with a lender to have your finances organized before even looking at homes. This will allow you the time to clean up any credit and save for the down payment amount in time to buy.
Whether you work full-time for a company or are self employed, we can help you find the best options based on your unique financial circumstances and goals.
Check Your Credit
Credit is the best way to get a good deal on your home loan. We’ll take a close look at your credit and check for any mistakes that could negatively affect your credit score.
Your credit should be run six months before you start the mortgage application process. If there are any errors our team will assist you with filing a dispute as soon as possible. The agency is responsible to answer the requests within 30 days of submitting.
It’s important to also pinpoint negative items that are harming your credit score, including outstanding payments, accounts in collections, bankruptcies, and too many credit checks. Yes, frequent credit checks can lower your score.
Improve Your Credit
Credit alone is the most important factor in determining whether you qualify for a mortgage. We’ll look at your ability to make timely payments and pay back the loan. Your credit report doesn’t contain your credit scores, but we’ll help you obtain your FICO scores as well.
Most conventional loans can be obtained with a minimum credit score of 620, however it is ideal to have a higher credit score as it influences the mortgage rates you qualify for:
Your FICO score is calculated based on various factors:
Payment History – 35%
Debt Owed – 30%
Length of Credit History – 15%
Credit Mix – 10%
New Credit – 10%
The best way to improve your credit score is to pay all your debts on time and in full. Also, avoid making any major purchases on credit or opening a new line of credit for a couple months before applying for a home loan as this could negatively impact your credit history and the amount of hard inquiries.
Reduce Your Debt-to-Income Ratio
Your debt-to-income ratio is another factor that determines how much mortgage you can afford. Your total recurring monthly debt divided by your gross monthly income in percentage is your debt-to-income ratio.
It is preferred that debt-to-income ratios are less than 36%, with no more than 28% of the debt going toward mortgage payments. In most cases, you can get a qualified mortgage with a debt-to-income ratio of up to 43%. Anything more than that unfortunately will result in you not qualifying for the loan.
The best way to reduce lower monthly payments is paying or restructuring your existing. This will free up more of your monthly income and allow you to afford more mortgage. Lowering your credit card spend can help reduce your monthly recurring debt and improve your credit score.
With a larger down payment, you reduce your loan-to-value and improve your chances of getting a mortgage. You’ll be making smaller monthly payments over the lifespan of the loan. You can forget about the mortgage insurance as well if you put down 20% of a larger down payment.
Make a Larger Down Payment
Start your financial plan as early as possible. We suggest that the best practice is to start at least a year before looking for a home. During this time minimize unnecessary spending and pay oof outstanding debt to ensure you meet the required debt-to-income ratio for the loan amount. Planning early allows you to also be organized and gather the paperwork you’ll need for applying.
The key to eliminate stress in the homebuying process is getting pre-approved.
During the pre-approval process, we’ll look at your credit score, income, assets, and other financial details to determine how much you can borrow. This also saves you from having to sit through the mortgage evaluation process after you’ve made an offer.
More than anything pre-approvals show sellers that you are serious about your offer and have the finances needed to complete the sale. In cases where there are multiple offers on the same property, a pre-approval letter can be the winning factor.
At Total Quality lending, we are always ready to answer any questions you may have about homebuying process. If you want to get a mortgage pre-approval or learn more about your home loan options, contact us today!