Wednesday August 5, 2015
You may have heard that it’s tough to get a mortgage right now or that banks simply aren’t lending. While that may have been true when the so-called “housing bubble” burst in the United States about 10 years ago, the situation has greatly changed today.
The reality is that if you have a reasonable income and credit score, you can qualify for a home loan. Before you meet with your local mortgage lender, it pays to understand what you’ll be asked and what documentation you’ll need to provide. Getting pre-approved for a mortgage is the first step you should take in your home buying process so you don’t fall in love with a home you can’t afford.
Running the Numbers
As you begin the process of securing a mortgage, spend some time analyzing different scenarios with an online mortgage calculator. These tools ask for variables like your state and city, the loan amount you’re seeking, your approximate credit score, the type of loan you’re interested in and how much of a down payment you can afford.
Before you fall in love with your dream home, it’s smart to get an idea of how much house you can afford. This can save you time by finding the right lenders and the right mortgage products for your individual situation.
Feel free to contact a Smith Douglas New Home Specialist for information on our preferred lenders who are happy to have a phone consultation with you as you explore your mortgage needs.
Income and Debts
Lenders will want to know your annual income, along with the amounts of any outstanding debts — including car payments, student loans, credit cards and medical debt. Using this information, lenders will calculate your debt-to-income ratio (DTI).
This number tells lenders how much of your salary is available each month for making a mortgage payment and for paying other expenses associated with homeownership. Your DTI doesn’t include variable expenses such as cable TV, cell phone and utilities.
Your lender will look at your credit reports to determine how likely you are to make your mortgage payments over the long term. Factors your lender will consider include the length of your credit history, the amount of your available credit and how well you’ve paid your obligations in the past.
In addition, your credit score plays a key role in the interest rate and other terms you’ll be offered. A credit score of 850 is considered perfect, and a score of 740 and above is generally considered to be very good. The higher your score, the better chance that you’ll be offered a low interest rate. Scores in the 600s likely will still get you qualified for a mortgage, but you may pay slightly higher rates.
The amount of money you can put down on your home also will play a role in the type of loan for which you qualify. Speak with your lender to find out which type of loan is best for your situation. Conventional loans usually require that you put down 5 to 20 percent, depending on individual lender requirements. If you don’t have that much, you may qualify for a loan through the Federal Housing Administration, which typically requires a down payment of approximately 3.5 percent of the sales price.
Your Perfect Home
Once you’ve pre-qualified for your mortgage, the only thing left to do is find your dream home. For information about our homes in the greater Atlanta area, contact us today.
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