Are you a first-time home buyer? First time on applying for mortgage? Wondering if you're qualified for it? So much debt and no down payment? Read on to know the basics of getting a mortgage.
Lending companies look at three things when you apply for a mortgage: credit score, debt-to-income ratio and downpayment. If you have two out of those three mentioned, then you are in good shape to buy your new home.
All lenders are credit-score-driven these days. FICO scores, the most commonly used, range from 300 to 850, but the number to shoot for is about 750. The higher the score, the more flexible lenders will be. But even with a score of 700, you will still be considered an A borrower and qualify for the best rates.
Another thing that you need to consider is your debt-to-income ratio. Most lenders have followed the 28/36 rule. It means that no more than 28% of your monthly gross income should be dedicated to your mortgage payment, property taxes and insurance, with total debt equaling no more than 36% of your gross income. But if you have no other debt, you can dedicate 36% of your income to home payments. With an FHA-backed loan, you may be permitted to apply as much as 41% of your income to total debt.
Coming up with the down payment is a struggle for many buyers, but it can make a big difference, especially if you don't have stellar credit. The more money you put down, the less risk the lender takes on. A 20% down payment is the threshold at which you're exempt from private mortgage insurance, which can add a few hundred non-tax-deductible dollars to your monthly payment.
Lending companies look at three things when you apply for a mortgage: credit score, debt-to-income ratio and downpayment. If you have two out of those three mentioned, then you are in good shape to buy your new home.
All lenders are credit-score-driven these days. FICO scores, the most commonly used, range from 300 to 850, but the number to shoot for is about 750. The higher the score, the more flexible lenders will be. But even with a score of 700, you will still be considered an A borrower and qualify for the best rates.
Another thing that you need to consider is your debt-to-income ratio. Most lenders have followed the 28/36 rule. It means that no more than 28% of your monthly gross income should be dedicated to your mortgage payment, property taxes and insurance, with total debt equaling no more than 36% of your gross income. But if you have no other debt, you can dedicate 36% of your income to home payments. With an FHA-backed loan, you may be permitted to apply as much as 41% of your income to total debt.
Coming up with the down payment is a struggle for many buyers, but it can make a big difference, especially if you don't have stellar credit. The more money you put down, the less risk the lender takes on. A 20% down payment is the threshold at which you're exempt from private mortgage insurance, which can add a few hundred non-tax-deductible dollars to your monthly payment.
