November 28th, 2021 1:04 PM by Jackie A. Graves
Getting a home loan? Here's some important information.
Most people who want to buy a home need to finance it, and that's where mortgages come in. If you're planning to apply for a mortgage, here are a few essential things every mortgage applicant should know.
1. Your credit score makes a huge difference in getting approved
Of the different factors mortgage lenders look at when approving home loan candidates, credit scores carry a lot of weight. That's because your credit score speaks to how reliable a borrower you are. If your score is high, it sends lenders the message that you pay your bills on time and can be trusted to borrow a large sum of money. If your score isn't in the best of shape, a lender might hesitate to loan you several hundred thousand dollars to purchase a home.
You'll need a minimum credit score of 620 to qualify for a conventional mortgage. But some lenders may require a higher score than that. If you want to snag the best mortgage rates lenders have available, you'll generally need a score in the mid- to upper-700s or higher.
It's a good idea to find out your credit score before you apply for a mortgage. That way, if you're not thrilled with the number you see, you can take steps to boost it.
2. Too much existing debt could stop you from getting a mortgage
Even if your credit score is in good shape, having too much existing debt could make it harder to get a mortgage. If a lender sees too high a debt-to-income ratio on your application, that lender might worry that you're so loaded with debt already that you won't manage to keep up with your home loan payments.
If you're able to pay off some debts before applying for a mortgage, that could increase your chances of getting approved. But if that's not possible, another option is to boost your income with a side job.
Your lender will take your total income into account when determining if you're eligible for a home loan. It may be easier to increase your earnings than to come up with the money to pay off debt you're already carrying.
3. The amount you're approved to borrow may not be the amount you want to borrow
The amount of money you're eligible to borrow for home-buying purposes will hinge on your credit score, existing debt, and income. It will also hinge on the value of the property you're looking to purchase. But just because you're able to qualify for a $300,000 mortgage doesn't mean that's a comfortable amount for you to borrow. And it's you who should make that determination, not your lender.
Before you apply for a mortgage, take a look at your budget and figure out what housing expenses you're comfortable with. Then, run some numbers to see what that translates to in terms of a mortgage.
Applying for a mortgage may seem like a daunting process, so the more you know ahead of time, the better. If you're looking to buy a home, check up on your credit score, see about lowering your debt-to-income ratio, and figure out how much housing debt you actually want to take on. Doing so could help you approach your home loan application with more confidence.
Chances are that interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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