Mortgage Tips Part I: Tips to Help You Qualify and Save Money
Three Mortgage Shopping Tips to Help You Get Qualified for a Mortgage
Shopping for a mortgage is easier than ever. You go online, put in a little information about yourself, find mortgage rates and offers. Lenders are out there ready to compete for your business.
The hardest part of shopping for a mortgage is preparing in advance. Bills.com's mortgage tips will help you shop for a mortgage that fits your budget and financial situation. If your credit is only fair or if you have a small down-payment, an FHA loan is your best option. If you have excellent credit and at least a 20% down-payment or equity, then you can get great offers on a conventional loan.
Our first three mortgage tips will help you get qualify for a mortgage. They focus on three areas to which lenders pay close attention, when reviewing your loan application: credit score and history, debt-to-income ratio (DTI), and down-payment or loan-to-value ratio (LTV).
Mortgage Tip #1: Improve Your credit
An excellent credit score helps get you the best rates. Although some lenders will approve you for a FHA loan with a credit score as low as 580, an excellent credit score increases your loan options and helps you get you the best rates.
Here are some ways to improve your credit:
- Pay all of your bills on time.
- Lower you credit utilization on your credit cards.
- Clear off all collection items.
- Clean your report of any negative items.
- Avoid taking out new credit while shopping for a mortgage.
Mortgage Tip #2: Lower you Debt
The more debt you have, the smaller the mortgage you can qualify for. Lenders use your DTI ratio to qualify you, comparing your gross monthly income to certain monthly living expenses.
While an overall DTI of 43% is passable, we don’t recommend carrying that much debt. Try to keep your overall debt (minimum credit card payments, auto loans, student loans and court ordered payments) and housing payments (mortgage, property tax, and property insurance) as low as possible, and no more than 36% of your gross monthly income.
Here are some mortgage tips that will help you lower your debt and improve your debt-to-income ratio:
- Pay off your credit cards each month. Avoid minimum payments and keep your balances down.
- Don’t run up new credit card debt. Use emergency funds to cover emergency expenses.
- If you have student loans, then check out special Income Based Repayment (IBR) programs. You might be eligible for lower payments that will free up money you can use on your mortgage payment.
Mortgage Tip #3 Save Money
If you are refinancing, your mortgage lender requires that you have cash reserves, and money for closing costs, and equity in your home.
If you are buying a home, you might also need money to cover other expenses such as moving, new furniture, small repairs, and major appliances. You can get a purchase mortgage with a down-payment as low as 3.5% (FHA loan) to 5% (conventional loan), but you can save even more if you have a 20% down-payment, by avoiding mortgage insurance.
Here are some shopping for mortgage tips that will help you save money:
- Cut down on your monthly expenses. Use Bills.com ways to save calculator to help you find ways to save.
- Create a rainy day account for emergencies.
- Create a special account for your down payment.
- If you are using gift money, then make sure that you follow the correct procedures in transferring and documenting the gift money.
Our first three big mortgage tips (and the many other detailed ones) will help you get qualified for a mortgage. The better you are prepared, the easier it will be to qualify for a loan. For more mortgage tips check out our other article about mortgage tips to find an affordable mortgage and mortgage tips to get the best mortgage rates and terms.