Maybe you’re thinking this is the right time to buy a home. Mortgage rates are low, and you drove by that ‘perfect’ house, and you’ve got the itch to buy. So what do you need to know to go from “I’ve got to have it,” to “Sold!” The best mortgage tip advice is to do your homework before you start house shopping. Here are a few tips to consider:
Mortgage Tips: Face the Facts
You’ve heard about the fiasco known as the Equifax credit breach. More than a third of us had our personal information compromised. As a result, financial gurus have recommended that you check out your credit score with Equifax, TransUnion and Experian to make sure it is accurate. It’s critically important when applying for a home mortgage, because a low credit score and credit fraud can derail your plans for your dream home. Most lenders require a minimum credit score of 680 in order for you to qualify for a home loan. If you are looking at an FHA loan, they look for credit scores north of 620. In addition to your credit score, bankers will look at your payment history. Have you missed payments on other obligations? Are you frequently late on paying your bills? Those markers will let a mortgage lender know of your responsibility, and likelihood of paying your home mortgage on time.
2) Are You Cashed Up?
Money talks, especially when it comes to a home loan. If your credit score is sketchy, and your payment history isn’t so hot, then cold hard cash talks. Even if you have a great credit score, walking into a lender’s office with no cash on hand for the purchase can deny you a mortgage. So how much cash do you need? Every mortgage lender has it’s own criteria, but in general, you’ll need a down payment of at least 3.5% of the home price. More is better. With the price of homes in Southern California, we know that means saving a lot of dough, but the real savings comes when you don’t need PMI. PMI stands for Private Mortgage Insurance, and lenders waive PMI when you put 20% down on your home. So break out your calculator and figure out how to put the money away. Not having PMI lowers your monthly mortgage payment, so saving now pays off on down the road. Also remember additional costs: closing costs, home appraisals, title searches, moving expenses. We want you to have the home of your dreams, but also want you to be educated before you buy.
3) Debt Free is a Beautiful Thing
When you apply for a mortgage, lenders take a long peek into your financial history. Not only are they interested in if you pay off your obligations on time, but also how much debt you are carrying. They call it Debt to Income Ratio, which just means the more debt you are carrying, the less likely you are to be approved for a loan. Every lender has their own evaluations, but a good rule of thumb is that they will see if your debts (credit cards, student loans, potential mortgage payments, etc..) exceeds one third of your income, they are queasy about loaning you the cash. If you pay off your debts before filling out a home mortgage application, you’re much more likely to see “Approved” on your application. Also note that lenders will check your debt status just before closing, so any other big purchases you make right before closing can impact their decision.
4) Know Your Limits
We know you are anxious to find and move into that perfect home. Contact us to let us show you what is available. We suggest getting pre-approved for a mortgage before our first house hunting trip. It’s simple: just contact a lender, give them your financial info and let them tell you the amount they will lend. It will free you up to only look at properties that make sense for you. You don’t want to fall madly in love with a property that there is no way you can afford. Speaking of which, lenders can pre-approve you for a lot more house than you can actually afford. Life can get much more stressful when you are house-poor, so get pre-approved, and use it as a general guideline when you are looking at listings, but always consider how much extra cash you will have after paying the mortgage every month, in order for your purchase to be a happy one!