Ok, here's the thing, to banks, we as consumers are ALL risks. When applying for a mortgage, banks consider 4 things when deciding IF they are going to approve you for a loan and for HOW MUCH.
So, the better your credit/FICO, more stable income/employment, lower debt-to-income ratio, and the more savings/reserves you have, the LESS of a risk you are to the bank. As a result, you are rewarded with a lower interest rate. Your interest rate is directly proportional to your monthly mortgage payment...i.e. the lower your interest rate, the lower your monthly mortgage payment.
- Credit / FICO
- Income / Employment
- Debt-to-Income Ratio
- Savings / Reserves
Credit/FICO -Lenders typically want to see a 620+...if you are looking to get grants and incentives (if applicable) then you want to shoot for a 640+. Please note, there are loan products out there that will take a 580+, but please know that your interest rate will be significantly higher than the market interest rates~higher monthly payment.
Income/Employment -Lenders typically want to see CONSISTENCY in your income/employment...at least 2 years. If you just recently switched jobs, as long as the income is consistent, you should be ok. They don't typically like to see gaps in employment, if there is they will ask for an explanation. Also if you graduated college/certification program and have an award letter from an employer, I've been told by some lenders, that will suffice as well.
Debt-to-Income (DTI) Ratio: Debt to Income Ratio is the ratio of money coming in from income (earned income, child support, alimony, assets, etc.) vs money that going out in monthly bills and expenditures (utilities, etc) This is the portion in which Student Loan Debt can kill your dreams...another conversation for another day. Overall, you want to keep your DTI below 35%
Savings/Reserves: Savings can be your own savings, 401K/IRA, or any retirement, also a gift of funds from a relative. Essentially money that you would be using to pay your closing costs at closing. Please note if you are having someone provide a gift of funds please alert them to prepare to show bank statements showing the money is present.
Speaking with a lender and allowing them to pull your credit to look at your overall financial picture should be the first thing you do in the process of buying. They can give sound advice on the specifics of what you need to do to get to where you need to be in order to get approved or approved for a better interest rate.
Notice how I didn't say credit repair...stay away from them.
NObody should be giving you credit advice unless they are qualified to loan you the money to buy real estate.
Join my FB Group for more good tips. Sorry Realtors, I love you, but this group is NOT for Realtors.
Any questions? Call/Text me today! 443-845-1137
Tomeka Givens, Realtor®
ExecuHome Realty
443-845-1137 mobile
tomekagivensrealestate@gmail.com
