For many people, buying a home may be the biggest purchase they will make in their lifetime, and the right time to buy is different for everyone. Before making the decision to buy a home, consider the following questions:
How do lenders determine who qualifies for a mortgage?
Lenders take many things into consideration: credit score, the cash you have available for a down payment and closing costs, your income, and your existing debt and financial obligations are just a few. Two housing ratios are used:
- The housing expense-to-income ratio compares your anticipated monthly mortgage payment (principal, interest, taxes and insurance), to the total gross monthly income (pre-tax) for your household.
- The debt-to-income ratio compares total monthly expense, including the anticipated monthly mortgage payment to the total gross (pre-tax) monthly income for your household.
How do I know how much money I can borrow to buy a home?
Your mortgage consultant will help you get a preliminary approval that lets you know the maximum loan amount you might be able to borrow.1 With that information in hand, you can then determine a price range with which you are comfortable.
What is a credit score?
The three credit reporting agencies — Experian, TransUnion and Equifax — serve as a clearinghouse for credit information. “Credit score” is a term often used to refer to credit bureau risk scores. It broadly refers to a number generated by a statistical model which is used to objectively evaluate information that pertains to making a credit decision (i.e. credit cards, car loans, student loans, etc) that includes:
- Your payment history
- The total amount you owe
- The amount of time you’ve had available credit
- Whether you have any judgments entered against you
- Whether you filed bankruptcy
- The number of times potential lenders have reviewed your credit
Information in the agencies’ reports is evaluated and interpreted into a “credit score,” which help lenders make loan decisions. Credit scores range from 300 to 850, and yours may determine whether you are approved for a loan, the terms of the loan, and the interest rate.
Note: Making large purchases with a consumer loan or credit card just before applying for a mortgage may impact your ability to qualify. So consider your needs and priorities carefully.
If you still have questions about the home buying process, don't worry. We are committed to providing information that will help you make well-informed decisions about the financing process. Our mortgage consultants will pay attention to your goals, help you understand your options, and clearly explain how different loan programs work. So, you can take an informed, hands-on approach to achieving your goal of owning a home.
1. A preliminary approval is based on our preliminary review of credit information only and is not a commitment to lend. We will be able to offer a loan commitment upon verification of application information, satisfying all underwriting requirements and conditions, and providing an acceptable property, appraisal, and title report. Preliminary approvals are subject to change or cancellation if a requested loan no longer meets applicable regulatory requirements. Preliminary approvals are not available on all products. See a mortgage consultant for details.
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