There is a lot of information out there about the mortgage loan process itself—what documents you need, how long each step takes, and more—but not as much information about the important steps you should be taking several months, and even years, before you go to apply for that mortgage. Here are some important things that should be on your radar long before the mortgage process.
Check Your Credit Score
You have probably heard this one before, but it’s such an important part of the mortgage loan process. While there is no exact credit score number that automatically qualifies you for a loan, there are some general guidelines depending on the type of loan you will apply for:
- FHA loans with 10% down: 500
- FHA loans with 3.5% down: 580
- VA loans for veterans: 580-620
- USDA loans in designated rural areas: 620
- Conventional loans: 620-640
None of these numbers are set in stone, so for example, a lender may be willing to give you a VA loan if your credit score is below 620 but they may require a bigger down payment.
By checking your score you can identify whether you are in the right range for a home loan, how much you might need to save for a down payment, and whether you need to take steps to improve that score, which can take time.
Pay Off Debts
One important factor in your ability to purchase a home is how much debt you currently have compared to your income, called a debt-to-income ratio. Lenders want to know you will be able to make a mortgage payment, so they have guidelines on how much of your income should be paid toward debt. If you have lots of other debts, like student loans, car payments, credit card debt, or medical bills, those all go toward your total debt calculation and can reduce what a lender is willing to give you for a home mortgage. Paying down debt (even if you can’t pay it off entirely) gives you more financial flexibility to get a bigger loan for that home you really want. Eliminating debt can also improve your credit score.
Watch Your Spending
Putting things on your credit card right now if you don’t have the ability to pay it all off right away can harm your credit score. Likewise, taking out new loans right before you plan to buy a home can lower your credit score. Don’t sign up for that store credit line, buy a new car, or make any big purchases on a card until you’re done with the mortgage process.
If you take these financial steps well in advance of your mortgage loan application with Integrity First Lending, you can help the process go smoothly and get the best loan at the best interest rate for your new home.