The best way to make getting a mortgage easier is to be organized and prepared when you decide you are ready to buy a home. Having a good first meeting with your mortgage loan officer and knowing what questions to ask will ensure that you learn everything about which loan program will be right for you. Below are three tips that every home buyer can use to make getting a mortgage easier.
Work on Having the Highest Credit Score Possible: having a high credit score is one of the single best things that a borrower can do to minimize monthly payment costs by optimizing the mortgage interest rate. Interest rates to a degree are credit score sensitive, especially on a conventional loan so for that reason alone it is important for home buyers that need to improve their credit to start this process as early as possible before they are ready to buy. For example, some buyers want to go conventional for their loan choice, but they may have a credit score under 680 which makes FHA a better option in some cases due to the potential higher monthly payment costs. On a conventional loan with a credit score under 680, when you put less than 20% down your PMI, or private mortgage insurance costs will be higher for lower credit scores than they will for credit scores over 680. Keep this in mind when working with your loan officer and deciding between a conventional or an FHA mortgage loan.
Low Debt to Income Ratio (DTI): in order to qualify for a mortgage and to keep the process smooth and stress-free, it is certainly to the borrowers benefit to have a debt-to-income ratio of 43% or less. Yes, it is possible to get a conventional or FHA loan with a higher DTI, but it makes the underwriting process so much smoother when a borrower has managed their debt well in relation to their income before buying a home. Lenders look at so many factors when evaluating a borrower’s financial qualifications to purchase a home. The big three factors are credit, income, and debt for most mortgage loans. If you check the first box with a good credit score, and now you check the second box with a low debt-to-income ratio, you will find your loan application well on it’s way to a mortgage approval. In addition, having such a “clean” loan file might make your purchase offer more competitive than another one in a multiple purchase offer situation. Your loan officer can call the listing agent to let him or her know you are a highly qualified purchase candidate. You have managed both your credit and your debt much better than most buyers so please take this into consideration when the Seller is evaluating multiple offers.
How to Lower your Debt-to-Income Ratio
The simple answer to this question is to just pay down your debt. But paying down debt when you are planning to buy a home has some unique considerations. The answer to the question “how to lower your debt-to-income ratio” comes in the form of paying down the debt that will either remove a monthly payment or lower a monthly payment. So, first look for credit cards on your credit report that have a small balance where this monthly payment can be eliminated. Try to pay those cards off without closing the credit account so you maintain your positive credit history with that account. Next, look for accounts with a small balance that might have a high monthly payment. You want to do what you can to pay down those accounts next, if, and only if that will also reduce the minimum monthly payment on those accounts. By removing or reducing your minimum monthly payments this will lower your debt-to-income-ratio and put you in a better position when you are ready to get pre-qualified for a mortgage.
Income: Know the Details before you Apply for a Mortgage
While the easy thing to say here is that all high-income earners have a better chance of buying a home, that is not necessarily the case. The truth of the matter is, all income is not created equal based on how high or low your income may be. I would be lying if I didn’t say that more income does equal more purchasing power when not factoring in a persons debt, but the type of income matters and the stability of the income also makes a big difference in ones loan application. Let me explain.
Mortgage lenders need to show a 2-year history of income receipt as well as a recent history of receiving the current level of income if in a new job. And on that subject of a new job, all lenders will correctly tell you it is not recommended to make any job changes when you are under contract or even 60 to 90 days out from buying a home. If you are not yet under contract, the only exception may be if you receive a promotion at your same company, or you make a lateral job move in the same industry but doing the same job at a different employer for more money. This will be on a case-by-case basis so before making any move, I would strongly suggest consulting with your loan officer before accepting any new job.
So, you can see there are things borrowers can do to make the mortgage process smoother and more stress-free. If you can work hard on your financial profile and prepare according to the guidelines above, your mortgage application will be on solid financial ground, and you will be putting yourself in a great position to buy a home.
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