Your credit score is one of the most important factors when qualifying for a mortgage loan. Paying your bills on time every month doesn’t mean you will have stellar credit. The amount of credit you’re using relative to your available credit limit or your credit utilization ratio can adversely affect your credit score. Repairing damaged credit takes time. If you think your credit needs work, you will want to begin the repair process at least six months before purchasing a new home.
2. Assets and Liabilities
You will want to take a good look at your income versus what you owe. You may want to track your spending for a couple of months to see where your money is being spent. You will also want to check with potential lenders to see how they view your income. For instance, if you are self-employed or an independent contractor, you may have a more difficult time getting a loan than others. You will need to have a solid two years’ earnings history for the lender.
3. Important Documents
Mortgage lenders will request two recent pay stubs, the previous two years’ W-2s and tax returns as well as the past two months of bank statements. Knowing what you need and being prepared will save time when you’re ready to apply for a mortgage loan.
4. Qualifying
You will want to qualify yourself by calculating how much house you can afford before going to a lender. There are online tools that will help you calculate your debt-to-income ratio and factor in a down payment. This will give you a good idea of what you can afford, both upfront and monthly.
The front-end ratio dictates what percentage of your gross income should be devoted to your housing costs. The back-end ratio shows what portion of your income is needed to cover your monthly debt obligations.
5. Down Payment
Since it can take time and effort to save, you will want to figure out your down payment. There are a number of programs available that can assist buyers with qualifying incomes and situations.
