Before you buy a home, you need to qualify for a mortgage. A mortgage is a loan you’ll obtain through a qualified lender to finance your new home and make monthly payments for the duration of the loan. However, when it comes to getting a mortgage, many first-time homebuyers may be wondering how they can qualify for one. While finding the right lender can help you obtain one, it’s important to understand the different factors that can help you qualify. Here are some helpful tips on how to qualify for a mortgage so you can land the home of your dreams.
Review Your Current Debt-to-Income Ratio and Take Steps to Increase Your Credit Score
Before you are approved for a mortgage, lenders will do a hard credit check on your current credit report in order to determine what your interest rate will be. In most cases, the higher your credit score is, the better interest rate you’ll get. Likewise, if your credit score is on the lower side, you’ll have a higher interest rate for the duration of your mortgage.
Generally speaking, low credit scores are the result of having a high debt-to-income ratio – in other words, how much money you have to cover all of your monthly expenses, including debts. If you are planning on moving forward with purchasing your first home, you should first analyze your current credit score.
Here’s how credit scores are ranked:
Very good: 740-799
To qualify for a mortgage, you’ll want to aim for a credit score between fair and good (580-739). Most lenders agree that scores of 620 are usually the best for obtaining conventional loans (non-government backed loans that must meet either Fannie Mae or Freddie Mac requirements). Even if your credit score is within this range, you always have to account for other home-buying expenses such as closing costs, down payments, maintenance, repairs, utilities, and furnishings, so it’s not a bad idea to try and pay off your lowest credit card or other low loan balances first. Cut back on expenses you can do without, such as coffee runs or subscriptions, and put the extra money toward these bills so you’re paying them off faster.
Set a Realistic Timeline to Achieve Your Goals
Say you pay off your lowest credit card bill in an effort to raise your credit – keep in mind that your credit report may not reflect those changes for up to 45 days. This is just one example of why it’s important to set a realistic timeline, both when it comes to paying off debts and increasing your credit score, as well as how much time you have to save up for a down payment. For example, if the rate you qualify for requires you to put 20% down, what steps can you take to be able to afford it? One way is by doing research and shopping around with different mortgage lenders.
This brings us to our next point…
Do Your Research and Shop Around
You’ll never be able to find the right mortgage if you don’t do your research and shop around with different lenders. After all, how can you determine how much you need to save if you don’t know what kind of mortgage rate you qualify for? As such, speaking with different vendors is critical.
Your experienced mortgage lender will be able to go through what’s known as the pre-qualification process. While they may be able to pull your credit history, this process is often about having an honest conversation with potential homebuyers to analyze their current financial situation to see what kind of loan would work best with their budget while simultaneously meeting their needs.
During this pre-qualification consultation, be honest with your potential lender so they give you the most accurate information. Furthermore, it doesn’t hurt to head on over to Google to find out how mortgages work and the different eligibility requirements for each. You can still go over all of this with your lender, but having a basic understanding of what to expect can make the conversation go a lot more smoothly and prevent you from feeling disappointed if you don’t qualify for what you were hoping you would. This brings us to our other point…
Understand What You Can Afford
Know what you can afford, regardless of what anyone tells you. While you’re shopping around, you may come across a lender who approves you for a mortgage that’s higher than you can afford because they’re not taking other expenditures like daycare, private schooling, and insurance into account. In other words, just because your credit score shows that you can afford a higher house, that doesn’t mean you can (or should).
By knowing what you can afford ahead of time, you’re better prepared to know what you’re qualified for, rather than what someone else says you’re qualified for. Far too often, first-time homebuyers fail to consider these other expenses until it’s too late. The best rule of thumb, when qualifying for a mortgage, is to make sure you’re qualifying for the RIGHT mortgage more than anything else.
Are You Ready to Apply for a Mortgage? The Team at M&M Mortgage Can Help
Knowing where to turn to obtain a mortgage is important. But finding an experienced lender you can trust to make the process easier for you is critical. At M&M Mortgage, our mortgage experts are here to answer any questions you have about the pre-qualification and pre-approval processes, as well as what you can expect after you’ve been approved for your home.
When you’re ready to get a mortgage, the team at M&M Mortgage can help. Give us a call at (651) 639-9800 to learn more and get started. We look forward to helping you secure the home of your dreams.