Getting a Mortgage
Welcome to your Financial Fitness Minute. Getting ready for a mortgage.
When it’s time for you to look seriously at a home purchase, you’ll need a guarantee of financing, known as a preapproval letter. This lets you know how much you can borrow, which will help narrow down what you can buy. When you start making offers, having your preapproval in place lets the seller know you’re serious. In order to qualify to get the preapproval letter from your lender, you’ll need to qualify for the mortgage, which requires three major things.
First is a good credit score. In the eyes of a lender, this is above seven hundred. Check all three of your credit reports, including your scores. If your score is low, you may have some work to do to pay off some debt and take care of problem accounts.
Second is the down-payment. This helps offset the risk that a lender takes in order to extend a loan to you. Basically, they want you to have a skin in the game, too. Plus, it means you can borrow a little less. Generally, this will be at least three point five percent of the purchase price. Typically, the higher the down-payment you can make, the less of a risk you represent, and the lower the interest rate that you might qualify for.
Third is your debt-to-income ratio. It should not exceed forty two percent. It’s calculated by taking all of the monthly minimum payment obligations that show up on your credit report, and adding those to the total proposed mortgage payment, including principal, interest, taxes, and insurance. That sum, in total, should not exceed 42 percent of the monthly gross income for the household.
Once you have that preapproval letter, you’ll be in a good position to start working with a real estate agent and find your dream home.
Thanks for joining us for this Financial Fitness Minute.