The vast majority of homeowners purchase their homes, with the assistance and use of some sort of mortgage. Especially, today, where home prices are at the level they are, in most areas of the country, few individuals are either ready, willing, able or capable of paying cash for a house. In addition, with the low mortgage rates available, it would be wise, for most, to borrow, in this way! When the housing crisis occurred around 2008, to a large degree, because of how mortgages had been handled, stricter requirements were implemented, and thus, CREDIT and credit – worthiness, is one of the most relevant issues, regarding acquiring a mortgage. It is often the key to the entire process.
1. Credit reports; creative; check: Before a potential homeowner begins the process of looking at potential houses, he should sit down with a qualified, recommended, trusted, mortgage professional. Have this individual check out if you qualify, and for how much! Don’t ask for a pre – qualification, but rather seek a pre – approval! Even before you visit this individual, acquire a copy of your Credit report. You are entitled to receive this once per year (free), so get it, look at it carefully, and correct any errors, etc. Use creative thinking to consider the best approach for you!
2. Reduce debt: Reduce the amount of debt you have, prior to applying. One of the metrics lending institutions use, is the ratio of debt to income, so pay off as much of your credit card debt, as possible, and avoid using these cards, until you close on your new home!
3. Earnings: Review your last two years tax returns, and see if you show sufficient earnings to qualified for the amount you will need. Again, earnings are a major component in the ratio, so perhaps you might avoid using certain tax credits, for a couple of years, prior to applying.
4. Debt ratios: There are at least two types of debt ratios, lending institutions consider and look at. One is the monthly mortgage carrying amount, to net income. The other is total debt, to income. Discuss these carefully with your mortgage professional, prior to beginning the application process!
5. Interest: What is the mortgage interest rate? Today’s low rates might mean you will be able to qualify for a higher priced home, because every percent of interest translates to a significant difference, in the costs!
6. Tax treatment: If you are currently renting your home, you know how much you pay monthly, and how comfortable that amount might be for you! When you own your home, remember that mortgage interest and taxes are tax – deductible from your income taxes, so if your area of the country has higher state income taxes, that might make owning even more attractive. For example, if you are currently paying $2,500 per month rent, and you are in the 30% federal and state income bracket, your net cost, when owning, might be about one thousand dollar more than renting, and be the same out – of – pocket, after taxes.
How is your CREDIT? Know it, and use it, to your best advantage!