If you're interested in buying a home soon, expect that it will be more difficult to get a mortgage in 2010 and beyond. San Diego mortgage broker Victoria Johnson states that "you'd better walk on water" to get mortgage financing. So before you start inquiring about mortgage loans, check the pulse of your finances to increase the chance that you'll get approved to finance your new home.
Try to save at least 20 percent to put down on the house if you plan to go for a traditional mortgage loan. The lender may be more lenient (expect the loan to be more expensive if the lender does accept less than 20 percent down), but this is a common requirement for financing. If you plan to apply for a Federal Housing Administration loan, you may have less stringent requirements for a down payment. The minimum down payment for FHA loans is 3.5 percent, but depending on your credit score it could be 10 percent or more.
Check your credit history and start trying to boost your FICO credit score. The exact requirements for getting financed for a mortgage vary by lender, but keep in mind that the minimum score is in the 580 to 619 range (applicable to FHA loan), but you're much more likely to get financed at a reasonable rate if you have a score of 760 to 850. Apply for your mortgage with a co-signer who has perfect credit if possible if you do not have the best credit as a way to improve your chance of getting approved.
Review your debt-to-income ratios and compare them with lender standards. Banks want to see a front-end debt to income ratio, which is the percentage of your housing cost to gross monthly income, of 28 percent or less. The back-end ratio, which is the amount of total debt you pay each month to gross monthly income. If your debt load is too high, put yourself on a debt reduction plan a year or more before applying for a mortgage and reduce or eliminate your obligations.
Choose a house listed at a price you can afford if you want to increase your chances of getting financing. Base the affordability on the amount of down payment you have (remember 20 percent for traditional loans and 3.5 to 10 percent or more for FHA loans) as well as your income. You can use online mortgage calculators to figure out what you can afford quickly.
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- What Is the Difference Between Conforming & FHA Mortgages?