Understanding the in’s and out’s of home ownership and qualifying for a loan can be complicated. There are lots of people and information out there that can be misleading, but ultimately qualifying for a mortgage comes down to four main things:
Credit: The BIG one.
Your credit score is crucial when being considered for a home loan or any loan for that matter. It’s the thing that a lot of people avoid knowing because they want to pretend they have a good score, but it’s better to know so you can work to get things in order before looking to buy. Your credit history tells a lender whether you’re someone who stays on top of their bills or not; it gives them an idea of how likely you are to pay them on time. Your credit score also plays a role in determining the interest rate you will be offered if you are approved for a loan.
Making sure you have a cushion of funds before getting to the down payment discussion is important. 3.5 percent is usually the minimum allotted down payment, but more conventional loans usually require anywhere from 5 to 10 percent. On top of that you will need additional funds for various settlement fees.
Debt to Income Ratio
Lenders want to see the big picture; what are your fixed expenses month to month and what percent of your income are you actually taking home. It’s preferred that someone is spending less than 50 percent on their fixed expenses. These include your mortgage, property taxes, homeowners insurance, car loans, student loans, credit cards, etc. Utilities, phone, and cable are expenses that are not included in debt to income ratio.
Before applying for a loan make sure the funds you are using to pay the down payment are in a liquid account (checking / savings). Some lenders will even require you to have cash reserves. This would normally only occur if someone was buying into an investment property or a second residence.
In conclusion, there is a lot that goes into making sure you are financially prepared to invest in a home of your own. This being said it is not as scary as it may seem if you face these four things head on. Be familiar with your credit score / history. Shop around for different loan options and make sure your accounts are all organized!
Lastly, we can help you prepare for the excitement of buying a home as well as find you the perfect place for you!
Give us a call today at 720.260.4461 to let us know what YOU need help with!
D Gees Homes & Realty has the experience, know-how, and infrastructure to offer you great opportunities in your real estate endeavors, whether you need to sell your house, a new rehab project to work on or would like to learn about other options.
Please call us today at 720.260.4461 if you’d like to learn more about the real estate services that we offer.