Your home may be the largest purchase you will ever make. Most homebuyers, though, will need approved lending before they can be handed the keys. Reading and following the below tips should have your financial situation ready for scrutiny before you apply for a residential loan.
Credit Report and Score Issues
Your credit rating is huge when it comes to lending approvals. The number required, however, varies so it's suggested that you ask your lender what they expect. Be sure you request a copy of your report from all the major credit bureaus well ahead of your financing application, so you'll have plenty of time to work on it. Check your report carefully and get mistakes corrected. Remember, the higher your score, the lower your interest rate will generally be.
Employment and Income
If you have been working for the same company for a while, don't mess up a good thing by changing jobs right before you apply for a home loan. Creditors look upon employment stability as a good thing. You should only change jobs if your new position is in the same industry, and it includes a substantial raise in salary. Your income has a hefty influence when it comes to how much house you can afford.
Credit Utilization Rate
This indicator is used by lenders to find out how much other debt you have compared to what is available. To figure out your credit utilization rate, divide your debt obligations by available credit. While everyone's idea of a good rate varies, many lenders like to see rates of less than about 30% and preferably much lower.
More math may be in order to determine your debt-to-income ratio which is simply your monthly debts added up and then divided by your monthly income. The lower the ratio, the better. Lenders appreciate applicants that have a lot more income compared to their monthly obligations. This ratio is often used to determine the affordability of a mortgage payment when added to other existing debts.
While mortgage options exist for those with low or no down payments available, most conventional lenders prefer (and may even require) that borrowers put down some cash on the home. This allows buyers to potentially buy more house, but it also provides lenders with more immediate equity to secure the loan.
To find out more about the above lending issues, speak to a lender and get started on finding your new home.