There are still places where banks are holding onto the stricter rules that followed the 2007 housing crash. However, there are others that are offering loans at 3 percent down. The USDA mortgage calculator helps you get a feel for what the housing market is like in your area. To prepare for a mortgage, consider the following steps.
Steps to Get Ready for a Home Mortgage
1. Find a mortgage that fits your financial situation.
Read the mortgage terms carefully. Buying a home helps you build equity and can save you money once the mortgage is paid. A fixed-rate mortgage carriers a higher starting rate but gives you a steady monthly payment, while an adjustable rate starts lower but may spike at some point, wreaking havoc with your payment. Wait for a mortgage that fits your financial circumstances.
2. Student loans aren’t a mortgage deal breaker.
According to the National Association of Realtors, 60 percent of homebuyers looking for their first home waited until they paid their student loans down. Student debt is typical, and lenders merely count it as another debt obligation, so having student debt won’t necessarily prevent you from getting a mortgage.
3. Reduce your debt-to-income ratio.
The debt-to-income ratio is your monthly debt obligations versus your monthly income, and it helps lenders decide whether you can handle more debt.
4. Slow down on accumulating debt.
When you apply for a credit card, the company pulls your credit in what’s called a hard pull, which impacts your credit score. To avoid high-interest rates, hold off on applying for new credit cards for 6-12 months.
5. A little self-reflection helps.
Banks use formulas and calculations to analyze your mortgage application. Overall, they are deciding the chances you’ll pay back the loan by making your monthly payments. Think about this when you make financial decisions. Two of the biggest red flags are missed payments and accounts in collections. If this is likely to show up on your credit report, it may be time to clear up old debt.
6. Learn more about your credit situation.
Having a good credit score is the best way to get a good rate on your mortgage loan. Because lenders scrutinize your credit report, you should review the factors that make up your credit score and improve area holding you back.
Following these steps can improve your credit score and your chances at a mortgage loan.