Applying for a mortgage is one of the most important steps in purchasing a home unless you are lucky enough to just pay cash. Getting a mortgage is a big stress factor when it comes to buying a home. Planning can help the process run much smoother. Below are six important facts to know when it comes to mortgaging your dream home.
1. Define a realistic budget
What you can afford makes a big difference when budgeting for a home purchase. Apply for a loan that you know you will be able to pay. Your monthly mortgage payment should be 28% of your income according to most lender's standards. If you have any other monthly debt payments, those added to your monthly mortgage payment should not exceed 36% of your total income.
2. Improve Your DTI (debt-to-income) ratio
This is a very important figure to a lender. A lender will want to know your DTI ratio to determine how much they can loan you. You are in luck if your DTI is 0 - 36% because you should have no problem with your desired mortgage. If your DTI is above the desired percentage you still can obtain a mortgage by lowering your DTI. A good way to accomplish this is to reduce or pay off current debts.
3. Make a huge down payment
The higher your down-payment the better your rates will be. A high down payment can also allow you to have better terms with your mortgaging services. Your monthly DTI can be reduced if you have a lower mortgage payment due to a big down-payment usually over 20% of your borrowing amount.
4. Boost your credit score
Your credit score can also boost or hinder your loan rate. If your credit score is low, avoid debts, make your payments on time to help boost your credit score.
5. Prepare the necessary paperwork
When you are applying for a mortgage, you will need to provide a lot of paperwork. The lender will ask for things such as pay stubs from the past month, your tax returns for at least a year, and bank statements for a few months. Some lenders might also ask for credit cards, loan statements, retirement funds, and other investments.
Being prepared and having everything in line will make the mortgage application process run smoothly and will be less stressful. Remember using a mortgage lender and a Realtor is the best way to ensure a smooth transaction.
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