If you're interested in purchasing a home in the near future, the chances are that you'll need to qualify for a mortgage. As interest rates are expected to climb over the next year, you want to make sure that nothing is hindering you from qualifying for lower rates.
Below, the debt resolution experts at Resolvly, take a closer look at how individuals can better position their finances to qualify for a home loan.
Know Your Debt-to-Income Ratio
Your debt-to-income ratio plays a big part in the size of the mortgage that you can qualify for. Lenders look for lower ratios when qualifying potential homeowners. Your debt-to-income ratio can be calculated by adding up your monthly debt payments and dividing by your total income.
Debt to be calculated includes rent, credit card payments, student loans, and automobile costs. If the total monthly cost of all of your debt is $3,000, and your monthly income is $8,000, then your debt-to-income ratio is 37.5%.
However, if your cost of debt is $2,000 with the same amount of income, your ratio will be 25%. Generally, the lower your ratio, the better the loan you can qualify for.
Pay Your Bills on Time
If you have a consistent record of paying your bills on time, it will be reflected in your credit report. Lenders like to see a solid history of regular monthly payments with their creditors. If you have a checkered history of late payments, it will reflect in your credit report.
It's wise to review your credit report for any discrepancies. You should check with all three credit reporting bureaus, including Experian, Equifax, and TransUnion. You are allowed to pull reports for free once per year, and you can use them to verify that the outstanding debts listed and payment dates are all correct.
If you disagree with any of the information contained in your credit report, it's important to address it as soon as possible. It may take a few weeks (or months) for credit reporting agencies to reflect changes to your report.
Have a Mix of Credit Accounts
Mortgage lenders tend to look favorably on those consumers who can show a variety of different types of credit accounts. Common types of credit accounts can include a current mortgage, credit cards, automobile loans, or student loans.
Showing consistent payments over time combined with a variety of different types of debt gives lenders the comfort that you will be able to handle a new mortgage.
Prepare Your Down Payment
Most lenders require a down payment before they will issue a mortgage. This can be difficult to save for first-time homebuyers and may take some time. However, if you make the choice to purchase a home and stick with your savings plan, you will eventually have the money available for your down payment.
Resolvly LLC Is Here to Help You
Resolvly is a Florida Bar-approved lawyer referral service that helps clients nationwide connect with consumer protection attorneys who specialize in debt resolution. We can assist you in obtaining debt relief so that you can be on your way to financial freedom.
