Before applying for a mortgage, borrowers need to build a plan for how they are going to manage their credit both going into the mortgage process and as they navigate through it.
Lenders like to know that borrowers have a strong likelihood of repaying the loans they take out and, as such, look carefully at an applicant's credit.
Here are three must-dos that can help an applicant turn into a home owner.
Pre-Checking Credit Reports
Before even starting the home loan application process, borrowers are well served to check their own credit reports and see what appears. If everything is correct, their credit score can help them understand what type of loans are open to them and what they might cost.
When errors come up, pre-checking gives the applicant time to have the errors corrected before applying for a loan.
When an applicant has credit issues, knowing gives him time to fix them. He can pay down balances, add new lines to his report or take other action in advance of applying.
Manage The Debt To Income Ratio
Mortgage lenders calculate a borrower's ability to borrow based on the debt-to-income ratio. They add up the proposed mortgage payment and the other debt payments and divide them into his monthly gross income.
If he has too much debt or not enough income he won't get the loan he wants.
To manage this, borrowers have two choices.
One is to earn more by taking on a second job. The other is to have lower payments.
Paying down credit cards can be a quick way to solve this problem.
Avoid Taking On New Debt
When an applicant takes on more debt while applying for a home loan, it can cause three problems:
- The inquiry can drop his credit score.
- The payments can change his DTI.
- The lender might not feel good about a borrower taking on more debt.
Getting a mortgage can be tough. The key is to understand what lenders want to see and give it to them.
If you need help understanding credit and how to prepare for your mortgage transaction, contact your trusted mortgage professional.