To Find a Mortgage, Keep Personal Loans and Credit to a Minimum
Getting approved for a loan
High credit card debt and numerous personal loans can mean disaster for people wanting to buy houses. Lenders are slowly beginning to open their doors again, but they are still being picky about who gets approved and who doesn’t. If you are looking to move into your own house soon, there are some crucial steps to take to better your chances of getting a mortgage loan.
Tips to attract buyers
The first thing to remember when trying to find a lender is that credit scores need to be good. In fact, the recession made many bankers worried and more stringent with rules as to who can get how much money for mortgages. Because of this, potential borrowers need to start working on their credit scores six months to a year before they ever fill out an application. To get the best deals, applicants need a FICO score of at least 740, and the lower they fall below that the more they will end up paying. These days the cut off for eligibility is 620. Most lenders won’t even look at someone with a score lower than that.
The second most important thing lenders look at when reviewing an applicant is their steady income. Lenders normally request two years of tax documents and recent pay stubs. Job consistency is also a factor in the mix. For those borrowers who are self-employed, there are many more cautions to take. Most likely the lender will want your business tax returns, profit and loss statements, business license and sometimes a letter from an accountant.
Keeping debts in control is the next key to getting approved for a loan. When it comes to using the ratios to calculate eligibility, lenders are using older models. They now are returning to the 28%-model where a mortgage should not exceed more than 28% of gross monthly income. Other debt, including personal loans and credit card debts, shouldn’t be more than 8%, creating a total debt-to-income ratio of 36%. If you are looking to take out a loan, you need to pay down debt to bring the debt-to-income ratio as low as possible.
Finally, having a 20% down payment on a property can give you a real fighting chance when it comes to getting a mortgage loan. Without it and you will have to pay for private mortgage insurance, or PMI, and that increases monthly liability. People who have less than 20% to put down on a home are being directed to the FHA loan option. With this option, borrowers with less capital can get approved, but at higher interest rates. It’s a good way for those without upfront cash but who can handle a heftier monthly payment to buy a new house.
Owning a home in the future
In the end, buying a house should be a happy experience. Today’s post-recessionary economy is making it difficult, but not impossible to qualify. Watch personal loan and credit card debt, cash reserves, credit scores and maximize income to not only get approved, but to find the terms possible. By using all these tools, potential homeowners can assure their financial home-owning futures.