Have you been thinking about buying a home and getting a mortgage? We ask all of our clients to consider the following things when looking to buy. Doing so can help to eliminate any surprises throughout the mortgage process.
Often, our clients will pull their credit scores from a website and take it at face value. And while that credit score is correct, it isn’t a credit scoring model that is allowed by the secondary market to determine your eligibility for a loan. Equifax Beacon® 5.0, Experian®/Fair Isaac Risk Model V2, and TransUnion FICO® Risk Score Classic 04 are the most commonly used scoring models to assess your creditworthiness
Discovering your credit score is as easy as filling out our online application or scheduling an appointment with us and providing us the information needed. In the meantime, below is everything that factors into your credit score, in order of greatest to least impact.
- Payment history – Did you know that a late payment can impact your score for seven years?
- Age and type of credit – A mix between credit cards and loans over time is best for your score.
- Credit utilization – We recommend that you never let your balance exceed 30% of your credit limit.
- Total balances – This includes all of your current and delinquent debt.
- Recent behavior – Your recent behavior includes all of your recently opened accounts and the amount of hard inquiries placed on your file.
- Available credit at your disposal
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Your debt-to-income ratio is another big factor in getting a mortgage. This ratio is the percentage of your monthly income needed to cover your monthly payments, such as debt and housing expenses, compared to your overall income. Ideally, your debt-to-income ratio shouldn’t exceed 36%. That means if your monthly income is $2,000, you shouldn’t be paying more than $720 in bills.
In order to lower your debt-to-income ratio, you either need to increase your income or decrease your debt. While increasing your income by working overtime or getting a part-time job may sound appealing, it often isn’t a sustainable solution. We’ve found that the best way to lower your ratio is by paying down your debt. If you increase your monthly payments on certain items, you will quickly make a dent in the overall amount of debt. Eventually, doing this will help to lower your debt-to-income ratio.
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Money Needed for Closing
Another one of the factors we look at when you’re getting a mortgage is your ability to pay all of the upfront costs. Both prepaids and closing costs are due at your closing.
Prepaids like property taxes, homeowner’s insurance, and mortgage interest are related to the actual home itself, not the real estate transaction. Closing costs are fees related to the real estate transaction itself. Included in the closing costs are payments to everyone who has worked on your loan from the underwriter to the appraiser. Buyers can expect closing costs to be about $2,000-3,000.
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If you’re thinking about purchasing a home in the near future, we’d love to work with you. Our online application takes anywhere from 5-20 minutes to complete and we can have you pre-approved for a loan in just a few hours.