Getting Financial Fit For Your First Mortgage

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If you are thinking about buying your first house, you probably have a lot of questions. Common ones are: how much can I afford, can I get approved, etc. It’s also a good idea to organize and try to optimize your finances. However, even if you’re starting with modest resources, you can still set yourself up for mortgage success. Here are some tips on where to start.
Recognizing Mortgage Readiness
Before diving into homeownership, it’s essential to know if you’re genuinely prepared for this commitment. According to a Freddie Mac study, the following signs indicate you might be in the right financial position:
• A credit score of 661 or above.
• A debt-to-income ratio (DTI) under 25 percent, focusing on mortgage debt. Including other obligations like student loans, the percentage can be a tad higher.
• A clean financial history without any bankruptcies or foreclosures in the last seven years.
• No overdue debt payments surpassing 90 days.
Your credit score plays a pivotal role. Landing in the 661 and above range boosts your creditworthiness. However, scores between 600-660 signify you’re on the brink, while anything below 599 indicates you might need to reassess your financial readiness.
Although deviations from these benchmarks don’t disqualify you from getting a mortgage, they might mean you’re overextending yourself or jeopardizing other financial aspirations.
Boosting Your Financial Standing
When considering you for a mortgage, lenders dissect your financial landscape — from credit scores to employment history. To enhance your mortgage approval chances, consider the following:
Monitor Your Credit: Begin by accessing your free credit reports from all three bureaus – Equifax, Experian, and TransUnion. They are available weekly on until the close of 2023. Rectify any discrepancies and understand the areas demanding improvement. Remember, most mortgages necessitate a minimum 620 score, but achieving a 740 or higher ensures the best interest rates.
Manage Your Debt: Ensuring on-time payments is crucial. If this has been a challenge, now is the moment to negotiate with creditors for a feasible solution. Lessen your debt through strategies like the debt avalanche, debt snowball, or consider debt consolidation. An optimal DTI ratio is often below 45 percent, although the specific percentage can vary by lender. Also, be wary of new loans which might spike your debt or adversely affect your credit score.
Prioritize Savings: Set aside funds not only for the down payment and closing costs but also for additional expenses like furniture or repairs. On average, the down payment in the first quarter of 2023 was $26,250. Although first-time buyers often deposit 6-7 percent of the purchase price, some loans only demand 3 percent down. Closing costs, too, can vary based on the location. Regardless of the exact amount, start saving with steps like automating your savings or reducing discretionary expenses. And fill out our online analyzer or schedule a meeting on our website and we can develop a customized plan for you.