There are things you can do and ways to prepare ahead of time that will help you get approved for a mortgage. If you are one of the many people who want to buy a home this year, take these things into consideration and put yourself in the best possible position to be able to make the move!
What Should My Credit Score Be?
In order to be eligible for the lowest interest rates possible, mortgage lenders are expecting to see a credit score in the 700 or higher range. Improving your credit score should start with knowing where you currently stand. From there you will need to make sure you are paying bills on time and lowering your debt to income ratio as much as possible. Visit this link for tips to improve your credit score, provided by Experian.
Debt to Income Ratio
Your debt to income ratio is exactly what it sounds like – the amount of debt you have as compared to your overall income. Mortgate lenders use this ratio to determine whether to lend you money or extend credit. A low DTI shows you have a good balance between debt and income. Lenders like this number to be below 36, and the lower it is, the greater the chance you will be able to get a loan.
To determine your debt to income ratio, add up all of your monthly debt obligations, including your current mortgage (principal, interest, taxes and insurance) and home equity loan payments, car loans, student loans, your minimum monthly payments on any credit card debt, and any other loans that you might have. Then use this debt to income ratio calculator to determine your ratio.
Lenders need to be able to verify that your income is at least enough to cover the loan you are asking for. The easiest way for an underwriter to look at verifiable income is on your W-2.
Cash and Liquid Asset Reserves
Lenders need to see that you have available cash reserves in addition to the down payment and closing costs. Here are some allowable asset reserves:
- Earnest Money Deposit
- Checking/Savings accounts
- Business accounts
- IRA/401k and other retirement accounts
- Gift Funds/Gift of Equity
- Sale of Assets
- Seller contributions
You can learn more about asset and reserve requirements here.
I hope these mortgage approval tips will help you on your way to buying the home of your dreams!
For more information or to get started on a mortgage application for Snohomish County homes or real estate, start here by contacting me today.
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