The ‘Should You Do It?’ Guide to Getting a Mortgage
Purchasing a home is one of the most significant milestones in your life, as well as one of the most exciting things you can do. Everything about finding your new home is charming, and even the slightest thought of your future coziness makes you feel butterflies in your stomach. However, sometimes it can be quite a long and expensive process.
Unless you are a millionaire with a bottomless bank account, you will need a mortgage to purchase your new home. Applying for a mortgage is a long and nerve-wracking process, especially if you are doing it for the first time. Yet, there are some things you need to know when applying for a mortgage, and you should follow these steps for sure.
Stable Income Is Your Shortcut to Mortgage
Mortgage lenders will like to have an insight into your monthly income. This will help them see if you can repay your loan. Hence, when qualifying for a mortgage, you will need to provide them with proof that you have a consistent income and employment as well.
Furthermore, mortgage lenders will inquire about any assets you may have that they may consider in the event of a financial emergency, such as stock portfolios, money market accounts, or other properties you may own.
The credit score is everything you will need, mainly depending on the type of mortgage you want. Typically, you will need a score of at least 620 for a conventional loan. However, you can also qualify for lower credit scores for some specific types of mortgages, such as those that are backed by the Federal Housing Administration and some departments such as the Department of Agriculture or Veteran Affairs. Also, the higher your credit score is, your interest rate will be better too.
The level of your down payment should mainly depend on the lender and the kind of mortgage you want to apply for. For an ordinary mortgage, you will generally need 3% of your home’s purchase price.
However, you need to keep in mind that if you want to avoid private mortgage insurance, you will need to put at least 20% down. The more money you put down, the lower the lender’s risk. Also, do not forget that the higher the down payment, the lower the loan-to-value, which can be quite appealing to lenders.
Your debt-to-income ratio is the amount of money you need to pay per month compared to your income. So, for you to qualify for the mortgage, your DTI needs to be less than 43% but no higher than 50%. Your lenders will also like to check your house expenses, mortgage, property taxes, and homeowner insurance, which should not exceed 28% of your monthly gross income.
Check Out Your Credit Report
Before you step deep into the mortgage application process, it would be a great idea to think for a second and check your credit records first. The health of your credit balance will play a huge role in getting a good deal on your home loan or even being approved at all.
So, the best way to start the entire process is to start pulling out the reports from the three major credit bureaus, such as TransUnion, Experian, and Equifax. Some of the easiest ways to do this are to visit authorized websites. These websites are authorized by federal law and will provide you with credit reports once a year.
How to Improve Your Credit Score?
Your credit report brings us to the next stop, which is equally important. If your credit balance is not in perfect shape, then you will have to spend some of your time cleaning it up. You must know that your credit balance does not contain your credit score. Fortunately, obtaining your credit score for free is quite simple.
Some of the major credit card issuers will provide you with your credit score for free. Speaking of the credit score you will need for the mortgage, some of the most conventional lenders will consider it to be 620 or 640 minimum.
A mortgage is one of the quickest ways to get your own home, even if you do not have a hefty sum of money. However, you need to keep in mind that having a mortgage reduce your house payment will demand some kind of process, and you will need to apply for it.
First things first, realistically observe whether you can afford a house or not. We hope this guide will be helpful in making the right decision.