Credit scores. Mortgage types. Interest rates. There’s so much to think about when financing your new home! Let us help you simplify and demystify some of the decisions you’ll make about financing your home.
Although credit scores aren’t the only factor lenders take into consideration when approving a mortgage, they can affect not only your ability to get a mortgage but also your mortgage rate. Applicants with higher credit scores – also called your “FICO” score – can sometimes get lower interest rates.
Your FICO score is developed from the credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion. Most mortgage lenders use FICO to determine both the types of loans you qualify for and the interest rates you’ll pay on those loans. Your FICO is based on:
Lenders need to know whether you’ve paid your bills on time.
Carrying at least some debt is good; too much debt looks risky.
This is how long you’ve been borrowing. Longer is better.
Lenders like to see a variety of credit types, from car loans to credit cards to student loans, and so on.
You’ve decided between building and buying. Now you’re ready to get started with the purchase of your dream home. There are still many decisions left to make, and an important first step is considering what your budget will allow.
As a general guideline, most financial professionals advise that no more than 28% of a homebuyer’s gross (pre-tax) monthly income should be spent on housing expenses: rent or mortgage principal and interest; property taxes; and homeowner’s insurance. In other words, your maximum housing expense ratio should be no more than your annual salary x 0.28 / 12 months.
Another important consideration is your debt-to-income ratio. This calculation considers all your debt obligations: mortgage, vehicle loans, credit cards, student loans, and any child support or alimony. In this case, most financial experts agree your debt should not exceed 36% of your monthly gross income: your annual salary x 0.36 / 12 months.
Fixed rate mortgage or adjustable rate? Shorter term or longer term? Conventional mortgage or FHA loan? Finding the right loan can feel overwhelming. Luckily, guidance is available. Loan Officers at First Equity Mortgage will work with you to find the home loan that’s right for you – at competitive rates. You can lock in with the Drees Freeze benefit (see below for more information). First Equity will coordinate with you and Drees, to help keep you on track.