Getting a home loan isn’t something you can do quickly. You cannot walk into the bank, apply for a loan and walk out with hundreds of thousands of dollars. Mortgage lenders weigh different factors about you carefully to determine if you are a good or a bad risk. The amount you can borrow varies based on the amount of risk the lender associates with you. You can look at what determines the amount you can borrow and how you can clean up your credit before applying for a home loan.
Income vs. Current Bills
There is a big difference between the amount of money you make and the amount that you bring home. Your take home pay is the total you receive each paycheck after your employer takes out taxes and other deductions. Lenders want to know that you make enough money to pay your current bills and still have money leftover to cover the cost of your new mortgage. The more money you have leftover from your take home pay, the more money you can typically borrow from a lender.
Debt to Credit Ratio
Before looking at homes listed with Realty ONE Group and other real estate agencies, you’ll want to consider your debt to credit ratio, which refers to the amount of debt you carry compared to the amount of credit you have. Owing $250 on a $1,000 credit card is far better than owing $1,500 on a $2,000 credit card. Lenders want to ensure that you are a responsible shopper and that you do not have a lot of debt weighing you down. The more debt you carry, the less money you will typically receive from a lender.
Improving Your Credit
In addition to these factors, lenders will often look at your credit history and at your credit score. A high credit score of 700 to 800 or more will likely get you a higher mortgage and a lower interest rate. If you have a credit score below 500, you may have a hard time getting a loan. Professional industry leaders like Kuba Jewgieniew sometimes recommend that home buyers improve their credit scores before applying for a loan. You can pay off some of your credit cards, pay down other debts and check your credit report for any errors. Improving your credit score is just one way you can get more when you applying for a home loan.