Home Buying Help . . .
It's that time of year again. Along with warm temperatures and watermelon, summer ushers in home buying season across the country. The following tips can help you save on your mortgage, whether you are planning on buying in the next few months or the next few years.
Tip 1: Improve your credit score
Mortgage lenders usually look for borrowers with a credit score above 650 in order to grant standard interest rates. Is your credit not quite making the grade?
It's possible to improve your credit score quickly in certain situations. But be careful; some things that you think might help your credit could actually lower your score. Stick to a few key moves for giving your score a pre-mortgage boost:
• Remove negative inaccuracies such as expired collection accounts, incorrect late payments and fraudulent public records from your credit report
• Avoid drastic changes to your credit report, such as opening or closing accounts
• Pay all your bills on time for at least 12 months before a loan application
• Avoid applications for new credit
• Reduce your credit card balances to below 35% of your credit limits
Tip 2: Reduce your debts
A lender will calculate your debt-to-income ratio (DTI) to see how much you could afford to pay back each month. You can calculate your DTI ratio by adding together your current monthly debt and credit card minimum payments with your estimated future loan payment, property tax and insurance costs. Divide this amount by your monthly income to see where you stand.
Many lenders use a 28/36 standard, meaning that no more than 28% of your income should go toward housing expenses and no more than 36% of your income should go toward your housing and other debts combined. If your debt to income ratio is too high, you can consider the following:
• Pay off small loans before buying a home
• Consolidate your student loans
• Increase your income by cosigning
• Find a less expensive home to purchase
Tip 3: Save for a down payment
Mortgage lenders will also calculate your loan-to-value ratio (LTV) to see how expensive a home you can afford. This is calculated by dividing the estimated loan amount by the property's value. Lenders look for a LTV ratio below 80%. A low LTV ratio will help you get a good interest rate on a home. A high LTV ratio may require you to purchase mortgage insurance. If your LTV is too high, you may want to:
• Increase your down payment
• Negotiate a reduced price with the seller
• Select a less expensive home to purchase
Improving your finances before you start to shop can help you save thousands on your mortgage.
Click here to check your credit report and see where you stand today!
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