Three Ways to Boost Your Borrowing Success for Mortgages
To be a savvy borrower, you need to know all the facts. Plus. you should want to be armed with all the information you can so you’re able to make strategic decisions you can feel good about in the long run when embarking on your homebuying journey. In this guide, you’ll learn how to determine your borrowing budget, set realistic mortgage goals, and how to increase your mortgage options before you begin your homebuying journey.
How to Increase your Mortgage Loan Options
To set yourself up for mortgage success, the best thing you can do in addition to learning everything you can about mortgages is to see your finances up for your future home purchase. There are a few ways you can consider doing to increase your numbers.
- Show More Income
Additional earnings can help you get approved for a bigger loan. But you don’t have to win a fortune in the lottery to boost your chances – any small boosts can help.
- Save Up for a Bigger Down Payment
The more you put down on your house, the less your monthly mortgage payments will be and the less interest you’ll pay in the long run. A best-case scenario is being able to put at least 20% down. However, with new homebuyers this is sometimes a bit of a stretch so whatever you can save to put down, the better off you’ll be. Just save what you’re comfortable with.
- Pay Off Debt
When you apply for a mortgage, one of the factors that your lender will consider is your debt-to-income ratio (DTI). This is the percentage of your monthly income you’re paying for your minimum monthly payments. Typically, your DTA should be 36% or less to help you qualify for a larger loan. A great way to decrease your DTI (which is what you want to do – the lower the percentage, the better), you can work on paying off any other debts you may have, such as credit card or installment loans.
- Raise Your Credit Score
Unlike your DTI, you want your credit score to be as high as you can. To boost your credit score, be sure to make all your payments on time and keep your credit card usage to a minimum if you can help it. For more tips, check out this article (link to credit score article).
- Add a Co-Borrower
It’s okay if you’re still working on building up your finances – you can still get your dream home with a little help. Adding a co-borrower to your mortgages – especially one who has strong credit and a steady income – may help you get a larger loan and better interest rate. By adding the co-borrower’s income to your own increases the total income the leader can use to qualify you for a loan.
- Get More than One Quote
Do your research and shop for the best interest rate you can. Be sure to get more than one quote when looking for your pre-approval before you embark on your home search journey – each lender tends to offer a different rate so it’s worth the time and effort to submit multiple applications.
How to Create a Homebuying Budget
Setting a homebuying budget involves more than just affording a monthly mortgage payment. There are lots of things you want to take into consideration
Best practice according to the majority of lenders is you shouldn’t plan to spend more than 28% of your gross monthly income on a mortgage payment (including principal, interest, taxes and insurance) and no more than 36% on total debt (such as your mortgage, student loans or credit cards).
Before you can determine your homebuying budget, you first need to calculate your household budget by monthly spending. You’ll want to make sure you consider the following while building your list:
- Food
- Transportation
- Medical Expenses
- Education
- Childcare
- Monthly Subscriptions
- Car Payments
- Insurance
- Pets
- Credit Card Payments
Plus, don’t forget to set aside money for life’s unexpected emergencies, such as illness or unexpected car or home repairs. This money acts as your financial cushion and you want to make sure you factor in a buffer.
Once you’ve built out your monthly household budget, you can subtract your monthly expenses from your monthly income and determine how much you can afford for your monthly mortgage payment. If you want to learn more about mortgage math, check out this article (link to Mortgage Math article).
How to Set a Realistic Mortgage Goal
This one is simple – know your budget, do your research, and make a plan to save for your down payment and closing costs. Once you save enough to hit the numbers you set for yourself, you can feel proud and empowered to embark on your homebuying journey. Working with a financial advisor is also a great way to set yourself up for mortgage success.
You can also connect with your bank or preferred lender to talk you through the process so you can start preparing for a strong mortgage preapproval for when you’re ready. And be sure to learn everything you can about preapprovals from this article (link to preapprovals article).
Better Budgeter = Better Borrower
With these tips in mind, it’s time to take action! Start preparing your finances to be the type of borrower you want to be so you can buy the dream property you’ve always wanted to call home. Yes, the process may take some time and dedication, but with a little determination and smart spending and saving habits, you’ll be a proud homeowner before you know it.
