You think you’re finally ready to start shopping for a home. You have been saving for a down payment, and trimming your debts. That’s a great start but what else do you need to do in order to qualify for a home mortgage?
Check Your Credit Score: Order your credit report from one of the reputable services and review it carefully for any errors or inaccuracies. If need be, work with the credit bureau to clear up those discrepancies. You will want your credit score to be as high as possible. Knowing where you stand before seeking a mortgage is very helpful.
Save for the Down Payment: Often times buyers think they have enough saved for a down payment, yet come up short. At least 5-percent is recommended for a down payment, which can be a substantial sum of money depending on the price of your future home. Keep saving throughout your shopping process.
Income: Your income will be a major contributing factor in how big a mortgage loan you will be able to get. Lenders usually look for a comfortable ratio between your total amount of debt and the income you bring in each month. The higher your income, the bigger mortgage you may qualify for. Generally, you will qualify for a mortgage that is between 2 ½ – 3 times your income.
Debt: Car payments, student loans, credit card bills all factor into your mortgage equation as well. If you have a lot of these debts, it can negatively affect the amount you qualify for. Leading up to your home-buying experience, attempt to minimize or eliminate these kinds of debts as much as possible, and resist opening new credit lines, as well.
Savings: The more the better. Lenders like to see savings accounts that can contribute to a nice down payment as well as some leftover for a rainy-day fund (cover several months mortgage payments, if necessary).
Get Pre-Qualified: Lenders will take all your financial information and pre-qualify you for a loan amount. Just because you qualify for a nice-sized mortgage, doesn’t mean you should take out that much. You need to determine how much you want to spend vs what you can borrow. It’s important to not over-extend yourself in this process (which is tempting to do!). Kids, pets, aging parents all add expenses down the road, as well as potential job changes or maintenance costs to your home.
It may seem overwhelming to buy a home, but that is why you have REALTORS® and mortgage lenders to help you through the process. If you’ve planned accordingly, you will find a home that you love, that is a price you can afford, all without breaking the bank.
The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.