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How to get ready to buy a house this year

Buying a house is a big life event. To make sure you start your journey on the right foot, we’ve put together a few things you’ll want to do before you step into your first open house. If you follow our tips, you’ll set yourself up to get the right type of home and home loan.

Check and improve your credit score
Your credit score (sometimes called a FICO score) will be used by your mortgage company to decide if you’re eligible to receive a loan and, if you are, the interest rate you’ll get. Scores range between 300 and 850 – the higher the score, the better. If your score is under 500, you have what’s called “challenged credit”. It’s not impossible to buy a home, but you’re going to struggle. Learn about buying a home with challenged credit. In general, the lower your score, the higher down payment your mortgage company may require.

Check your score for free once a year at annualcreditreport.com. If it’s low, you’ll need time to raise it. You can start by doing the following:

  • If you don’t have a credit history, get one. Take out a credit card and make your payments on time to show you’re credit-worthy. Not having a credit history can give you a very low credit score.
  • If your credit cards are maxed (or almost maxed) you’ll need to start paying them off. Using too much of your available credit can lower your credit score.
  • Pay bills on time. If your payments become 30-days past due they will likely be reported to the credit bureau and lower your credit score.

Decide where you want to live
Do you want to stay in the city, county, or state you’re in? Take a little time to research your options and make sure you know where you want to be for the next few years.

Contact a local mortgage lender
Working with a home expert who has connections in your community is always a great idea. They’ll know the local and state first-time homeowner and down payment assistance programs that can save you a lot of money – and that’s in addition to all the national loan and assistance programs. Together, you will go over your credit, income, and financial goals to find the best home loan.

Save for your down payment
The amount you need to save for a down payment depends on the type of loan you select and your financial situation. It can range from 0% of the total purchase price for a VA loan to as much as 20% or more for conventional or jumbo loans. Many people mistakenly assume you always need 20% down to purchase a home, and that’s just not the case.

Some people may chose to put as much down as possible while others will put the minimum down. Which is right for you? You and your loan officer can go through the pros/cons of each scenario to help you decide.

>> Get the scoop on how much you’ll need for a down payment.

Get pre-approved
Being pre-approved means your lender has already looked at your income, assets, debt, and credit report to decide how much they might be willing to lend you. It’s never a guarantee of a loan, but it’s much better indication (for both you and the person you’re buying from) that you’ll be extended a loan if you make an offer on a house.

>> Don’t make these first-time home buyer mistakes

Find a real estate agent to represent you
Once you’re a client, agents have a fiduciary responsibility to you. That means they are legally obligated to put your best interests first. They will know what to look for with a property and neighborhood, they will help you negotiate the price, and they will help you navigate the paperwork and legal issues with making an offer and purchasing a home.

After those steps are done, you’re ready to be a serious buyer with competitive offers on your next home.

Wherever you are on your journey to purchase a home, reach out to us. We are happy to go over your finances and goals and help you navigate the home loan process.

A good debt-to-income ratio

It’s the amount of debt you have compared to your income. Lenders use your debt-to-income ratio to decide whether you’ll be likely to repay your debts to them.

To figure out what your debt-to-income ratio is, add up your ongoing monthly bills. Minimum credit card payments, rent, auto loans, and student loans. Only consider your minimum payments, not the total amount you owe. Add them all up and divide it by your gross monthly income (before taxes and other deductions). This is your debt-to-income ratio and it’s written as a percentage.

As example, if you had a $1,100 monthly car payment, $300 minimum card payment, and $300 minimum student debt payment, your total monthly bills would be $1,700. If your monthly income is $5,000, your DTI ratio would be 1,700/5,000 = 0.34. 0.34 x 100 = 34. Your DTI would be a very healthy 34%.

DTI scores
Your lender’s biggest concern is whether you can pay back the loan. Your DTI score is just one of the calculations they use to help decide. They’ll also look at your FICO score, employment history, income, assets, and more.

At a minimum, they want to see your ratio under 50%. It’s ideal to have yours closer to 35%, but ranges between the two are acceptable.

Average debt per American
It’s difficult to tell what an average DTI ratio is, but we can say what the average amount of debt is. A 2021 CNBC report calculated the average American has $90,460 in debt. That includes their credit cards, personal loans, mortgages, and student debt. The higher an individual’s income, the higher their debt (and the easier it is for them to pay off).

Age 18 to 23: $9,593
Age 24 to 39: $78,396
Age 40 to 55: $135,841
Age 56 to 74: $96,984
Age 75+: $40,925

>> What do home lenders do when you have student loan debt?

Reducing your DTI
There are just two ways to do it. Reduce your monthly expenditures or increase your monthly income. Both options will take time and effort but pay off in the long run.

Rather than deciding on your own if your DTI is too high, consider talking to your home lender to go over it together. Local home lenders, like Mann Mortgage, will review your DTI and work with you and your unique financial decision to find the right loan.

6 things you shouldn’t do when you’re pre-approved for a mortgage

Just because you’re pre-approved for a loan doesn’t mean you’re guaranteed to get final approval on your loan. When your offer has been accepted and it’s time to begin closing on your loan, your mortgage lender is going to take another detailed look at your credit history, assets, income, and FICO score. You want to make sure you look just as good as you did the day you got pre-approved. How can you do that? 

Don’t miss payments
They’re going to see whether you’ve been late or missed any payments on your credit cards or loans since you were pre-approved. Just one 30-day late payment can negatively impact your credit report by many points. Make sure you have all your medical bills, parking tickets, and utility bills up-to-date and paid too! 

Don’t apply for new credit
Applying for new credit will lower your credit score and, if you’re approved, increase your debt-to-income ratio – a key factor lenders consider when you apply for a mortgage. These changes could affect the terms of your loan or get it denied altogether.

Don’t change jobs
This might be out of your control, but it’s best to stay with the job you had when you had your loan pre-approval. Switching jobs could signal a change in income, which may impact the amount you’re approved to borrow.

Don’t make any large purchases
You might be tempted to start shopping for furniture or appliances for your new home, but you shouldn’t do it. If you put the charges on your credit card, your debt-to-income ratio will change. And if you pay cash, you’ll have less money for a down payment or as an asset. Hold off on any large purchases until you’ve closed on your new home!

Don’t make big deposits
Any big cash deposits into one of your accounts prior to your mortgage closing looks fishy to an underwriter. They’re trained to spot evidence of borrowers needing to be gifted money for their mortgage – a clear sign the borrower may default. If it’s inevitable that you’ll have a deposit over $1,000, expect to be able to show the origin of the funds to your mortgage company. Transferring money between your accounts is generally fine.

Don’t refinance your loans
Don’t refinance your loans for a lower rate until after your home loan has closed. Refinancing is considered taking out a new line of credit, which isn’t good for someone looking for a mortgage. An established loan you’ve been making regular payments on looks better to mortgage underwriters than a new lower-interest loan you haven’t made many payments on yet.

What SHOULD you do?
Talk to your mortgage expert if you have any question on your current credit score or how your actions will affect your pre-approval. Your local Mann Mortgage branch is dedicated to making your experience both personalized and hassle-free.

6 things you shouldn’t do when you’re pre-approved for a mortgage

Just because you’re pre-approved for a loan doesn’t mean you’re guaranteed to get final approval on your loan. When your offer has been accepted and it’s time to begin closing on your loan, your mortgage lender is going to take another detailed look at your credit history, assets, income, and FICO score. You want to make sure you look just as good as you did the day you got pre-approved. How can you do that?  

  1. Don’t miss payments

They’re going to see whether you’ve been late or missed any payments on your credit cards or loans since you were pre-approved. Just one 30-day late payment can negatively impact your credit report by many points. Make sure you have all your medical bills, parking tickets, and utility bills up-to-date and paid too! 

2. Don’t apply for new credit

Applying for new credit will lower your credit score and, if you’re approved, increase your debt-to-income ratio – a key factor lenders consider when you apply for a mortgage. These changes could affect the terms of your loan or get it denied altogether.

3. Don’t change jobs

This might be out of your control, but it’s best to stay with the job you had when you had your loan pre-approval. Switching jobs could signal a change in income, which may impact the amount you’re approved to borrow.

4. Don’t make any large purchases

You might be tempted to start shopping for furniture or appliances for your new home, but you shouldn’t do it. If you put the charges on your credit card, your debt-to-income ratio will change. And if you pay cash, you’ll have less money for a down payment or as an asset. Hold off on any large purchases until you’ve closed on your new home!

5. Don’t make big deposits

Any big cash deposits into one of your accounts prior to your mortgage closing looks fishy to an underwriter. They’re trained to spot evidence of borrowers needing to be gifted money for their mortgage – a clear sign the borrower may default. If it’s inevitable that you’ll have a deposit over $1,000, expect to be able to show the origin of the funds to your mortgage company. Transferring money between your accounts is generally fine.

6. Don’t refinance your loans

Don’t refinance your loans for a lower rate until after your home loan has closed. Refinancing is considered taking out a new line of credit, which isn’t good for someone looking for a mortgage. An established loan you’ve been making regular payments on looks better to mortgage underwriters than a new lower-interest loan you haven’t made many payments on yet.

What SHOULD you do?

Talk to your mortgage expert if you have any question on your current credit score or how your actions will affect your pre-approval. Your local Mann Mortgage branch is dedicated to making your experience both personalized and hassle-free.

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