Prepare ahead of time to get the best deal on a mortgage
Buying a home is a big step in anyone’s life. But don’t wait until you’re ready to buy a home to get your financial life in order. If homeownership is on your radar, start looking at your financial history, including your credit score, now.
No matter what you’re looking for in a mortgage – low down payment, low interest rate, shorter term – early planning can help ensure you get the loan you want when you want it.
If you have had credit issues in the past, it can take a couple years to whip your financial life – and credit score – back into shape. Start now with these easy tips and make sure you’re ready when the timing is right.
Boost your chances of getting a mortgage
- Control your spending: Keeping credit card balances low and cash reserve balances high is key to getting the best interest rate possible. If your credit card balances equal more than 30 percent of your total spending limit, you can be sure it’s harming your credit score. And your credit score is a major factor in getting the right loan.
- Reduce your debt-to-income ratio: Lenders need to know exactly how much of your gross earnings (before taxes) go toward paying debt, such as credit cards (minimum payment only) and auto loans. This is known as your debt-to-income ratio. In order to qualify for a mortgage, your debt-to-income ratio needs to be less than 45 percent for FHA and other government loans and less than 35 percent for a conventional mortgage. To calculate your debt-to-income ratio, add up your minimum monthly debt payments, and divide that number by your gross monthly income.
- Know your what’s in your credit report: If you’re thinking of buying a home, before you apply for a loan or even speak with a real estate agent, you need to know what’s in your credit report. It’s important to spot and fix credit report errors immediately. You can obtain a free copy of your credit report at www.annualcreditreport.com, but this report does not include a score. Many credit card companies, such as Discover Card, provide a free credit score on your monthly statements. The higher your score, on a scale of 350 to 850, the better your chances of receiving a low interest rate.
- Save, save, save: While low down payment loan options exist, it’s important to save as much money as possible before pursuing homeownership. It’s important to note that there are other costs associated with buying a home and obtaining a mortgage than just the down payment. You will need money to cover loan closing costs, which can run from 1 to 3 percent of the loan amount, to appraisal costs, escrow costs and other mics. expenses. Contact an Essex Mortgage loan officer today to learn more about down payment assistance programs.
For more information on what’s needed to obtain financing for a home, contact Essex Mortgage today at (888) 892-4070.