Buying your first home is one of the most exciting purchases you’ll make in your life, but before you start to comb through the listings to find the home of your dreams, you’ll need to find out how much you can borrow. If the idea of buying a home is even minutely interesting to you, it’s never to early to get your financials in check so that when the time comes, there’s nothing to hold you back.
Here are some tips from some national mortgage pros to help you be mortgage-ready when the time comes to buy a home in Santa Cruz County.
Clean Up Your Credit Score
Your credit score and history are two of the biggest factors that lenders consider when processing your mortgage eligibility. Before you apply for your mortgage, request a free credit report from a trusted source so that you have an idea of where you stand before you begin the approval process. This way, you can dispute any errors if need be.
Your credit history report will include things like late payments, bankruptcies, and tax liens. On the upside, it also includes accounts that have been paid off in the last few years, so don’t cancel your old accounts, even if you’re not using them. It’s also important to reduce the amount that you currently owe. Usually it’s fine if you’re carrying some debt, most people do, but you should be using no more than 30% of your available credit.
The Do’s and Don’ts Of Mortgage Approval
- Don’t apply for any new loans before applying for a mortgage.
- Do pay all of your bills on time.
- Do pay off debts if you can, or keep them at a reasonable amount.
- Don’t apply for deferred payment plans.
- Don’t close any credit accounts, especially if they’re at $0.
- Don’t change jobs before or during your application.
It’s imperative that you follow these tips throughout the homebuying process, from pre-approval to closing, as even one little fault could throw a wrench into your loan acceptance.
Determine Your Own Eligibility
It’s easy to determine how much you can realistically afford for a home each month, especially with the help of some online tools, like debt-to-income-ratio calculators. While the mortgage broker can most definitely help you with this, doing it yourself can help give you a better idea of what kind of what you're getting into before you make an appointment.
There are two ratios to consider when you’re trying to find out your own eligibility: the front-end ratio, and the back-end ratio. The front-end ratio is the percent of your monthly income that will go towards your housings costs, so things like repairs, taxes, utilities, cable bills, and so on. The back-end ratio is strictly for your debt obligation. Ideally, your front-end ratio should account for around 30% of your monthly income, while your back-end ratio should account for around 35%.
When you feel like you’re ready, it’s time to find a mortgage broker that you can trust will have your best interests in mind. Consult with your friends, family, or trusted real estate agent, to see who they recommend for your mortgage needs. Once you’ve been pre-approved, it’s time to go shopping, and that’s where Lauren comes in.
For all of your homebuying needs, Lauren Spencer is here to help. Send her a message online or give her a call at (800) 226-4717.
Want to learn more? Check out our other first-time homebuying blogs for more information.