As the U.S. economy continues to rebound slowly from the housing crisis 8 years ago, many individuals are looking to purchase homes after years of renting or staying put in a their original house. Therefore, the real estate market is booming in most areas of the country, forcing prospective buyers to put in aggressive offers and, in some places, compete with wealthy investors and private equity firms paying cash.
Reviewing today’s mortgage market
Prior to the housing crisis of 2007–08, it was common for anyone with a bank account and a job could get a mortgage. Lenders marketed “sub-prime” loans on buyers with bad credit knowing full well that the home buyers could never afford the payments and would go into default status eventually.
What it takes to get approved for a mortgage
Prior to submitting a mortgage application or even walking through an open house, you’ll want to keep track of these things:
Your total monthly income
The sum of your entire monthly debt payments
Your credit score
How much cash you have available can put down
How much you can afford to spend on a house.
Your income to debt ratio
The preliminary step before applying for a mortgage is to document your total monthly income and the total of all your debt payments. You’ll need to disclose at least 3 months of pay stubs to your bank or lending institution, so it’s a good idea to start collecting those stubs.Your debt to income ratio should not exceed 35 percent.
Your credit health
Prior to applying for a home loan, make sure you get a copy of both your credit score and your credit history report.
You’ll want to review your report to ensure there are no errors or derogatory items such as late payments or charge-offs. As you search for homes to buy, you should consider subscribing to a service that provides regular credit report monitoring.If your credit score is below 680 due to derogatory items you might want to hire a credit repair company to help you remove these items that are negatively impacting your credit score.
Your mortgage budget
Prior to consulting with a mortgage banker, you’ll want to figure out how much house you can generally afford. A basic rule of thumb is that your total mortgage payment (including fees, taxes, and insurance) should be not exceed 35 percent of your gross (pre-tax) income. For example, if you earn $100,000 a year, your maximum housing payment would be $3,500 a month.
When and where to apply for your mortgage
You can set up a meeting with a mortgage banker and get pre-qualified at any time. A pre-qual basically means the lender believes that based on your credit score, income, you should be able to get easily approved for a home loan. This is an informal and totally non-binding process.
As you begin to get closer to purchasing a home you’ll definitely want seek pre-approval. You can speak with your local bank, credit union or mortgage broker or get online approval from a variety of online mortgage lenders.
Learn more at: https://www.k2credit.com