Five Top Tips for Mortgage Borrowers

Keep these tips in mind when you’re applying for a mortgage loan.

02/02/2015

When you’re trying to buy a house, it’s easy to become overwhelmed by all of the details you need to consider: school systems, neighborhoods and home inspections. One of the most important details is your mortgage. Start your home buying experience on the right path by keeping these tips in mind while you’re in the process of obtaining a mortgage loan.
 

1) Document your finances

When considering how much home you can afford, take a serious look at how you spend your current paycheck. If you’re using a significant portion of your income on paying off your credit card, lenders will want to ensure that you’re not applying for a mortgage that will leave you strapped for cash when all of your bills arrive.
 
“Lenders don't want to give out loans to borrowers who will have little money left each month after they pay their mortgages and other debt obligations such as credit cards and student loans,” stated Polyana da Costa from Bankrate.com. “If that becomes the case, the lender will tell you that your DTI, or debt-to-income ratio, is too high and you don't qualify for a loan. Try to keep your monthly debt obligations, including your mortgage and property taxes, below 43 percent of your income.”
 

2) Don’t wait to lock in a rate

Mortgage rates will likely be rising in the near future, so if you’re financially prepared to buy a home, get the ball rolling on the process as soon as possible. This doesn’t mean that you should try to purchase a home without ensuring that you’re financially ready, but if you have been considering buying a home and don’t know why you’re dragging your feet, you would be well served to at least meet with your local financial institution to find out your options.
 

3) Maintain good credit

In the recovering economy, lenders are doing everything they can to limit future foreclosures. This means that they’re taking the credit of borrowers seriously to ensure that they will be able to repay their loans.
 
Read through your credit report to make sure that there are no errors that are counting against your score. If your score is lower than you would like, talk to your financial advisor about ways you can raise it, and form a plan to increase your score before you apply for a mortgage. 
 
“Order your credit report from annualcreditreport.com so you know what you’re dealing with, especially if you’ve never checked your credit before,” states Martha C. White from Time.com. “…look to lower your utilization ratio — the percentage of your available credit you’ve used at any given time. The typical rule of thumb is to keep it under 30%, but lower is better.”
 

4) Don’t neglect your down payment

In addition to working on your credit score by paying down debt, talk to your financial institution about opening a savings account so that you can save for a down payment most efficiently. In today’s market, down payments are not something to be taken lightly. They can be especially important for people with less-than-optimal credit scores.
 
“Lenders are more willing to work with consumers these days even if someone doesn’t have a perfect score,” says Ken Lin, CEO of CreditKarma.com on Time.com. “For example, if you have a little lower credit score, but can put down 20% or maybe you only have 5% to put down but a great credit score, you can still qualify for a mortgage.”
 

5) Find a co-signer

If you can’t qualify for the mortgage you want on your own, obtaining a co-signer might be just what you need to qualify.
 
When using a co-signer “…part of that person's income can be considered toward your loan amount regardless of whether the person will actually be living with you or helping you pay the bill,” according to Amy Fontinelle from Investopedia. “In some cases, a [co-signer] may also be able to compensate for your less-than-perfect credit.”

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