Before You Buy: Four Invaluable Factors in Getting a Mortgage for Your Dream Home

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If you’re thinking of buying a home, you might be confused about what exactly goes into the process, and what you need to think about before you apply for a mortgage. It can be overwhelming, but here are the four most important factors you have to have before securing that all-important mortgage that will help you get the keys to your own castle.

A good credit score

In our daily lives, we might not think much about our credit score, but this can spell trouble when you’re looking for a home. The higher your credit score, the more likely a lender is to work with you and to help you get a good interest rate on a mortgage.

As a quick rule of thumb, a score above 670 is eligible for a mortgage, with scores in the mid-700s or higher being more preferable. If your score is below this threshold, you might wish to work with a financial advisor to consolidate your debts and rehab your score. 

Reasonable debt-to-credit and debt-to-income ratios

While your credit score is incredibly important in securing a mortgage, it’s not the only piece of information lenders look at to determine whether you’re eligible: they also examine your debt-to-credit ratio and debt-to-income ratio. One of these is incorporated into your credit score, but the other is uncovered when you submit your financial documents for approval.

First, the debt-to-credit ratio looks at how much you use the credit available to you, such as on lines of credit and credit cards. For example, if you have $10,000 in available credit across all your lines of credit, and you’re only using $1,000 of it, you have a debt-to-credit ratio of 10%, which is very reasonable. Lenders would like to see a debt-to-credit ratio of below 30%, so if you’d like to be approved for a mortgage, be sure to pay down those credit cards as soon as possible.

The next factor is the debt-to-income ratio. Put simply, the debt-to-income ratio is how much you owe on various debts compared to how much you make per year. If your debts are very high in comparison to your income, this might put you at risk of defaulting on a mortgage, and so lenders will be hesitant to work with you. Again, you want to pay off as much as your debts as possible before seeking a mortgage, as this will improve both your debt-to-credit ratio and your debt-to-income ratio.

A trustworthy mortgage broker

This is the secret sauce to getting a great rate on your mortgage! When most people think of a mortgage, they imagine going into their local bank and applying, but that’s not the only way – or even the best one. 

One bank is going to give you an interest rate based on their own holdings, but that might not be the very best interest rate you can get for your credit score. You can shop around on your own for mortgage rates; however, you might miss the greatest deal, so it’s always best to trust the professionals and go with a mortgage broker. District Lending and can find a great interest rate for your particular situation, so you can be guaranteed that you’re paying the least possible interest. Even better, many will help you refinance should a better rate become available, which can save you thousands of dollars in the long run. 

An approval letter

In order to get a mortgage, you need to have an approval letter, which shows that you’re eligible for a mortgage and can begin the property hunt process. This will be based on the information you provide to your mortgage broker or financial institution, which includes your credit score, your debts, your income, and any other assets you might have, such as properties or cars. This is usually acquired through a pre-approval process, where you input all the necessary information and have it analyzed to determine what rates you can access. 

Nowadays, the pre-approval process can be done almost entirely online, and often within only a few hours or days, so you can learn right away whether you’re eligible for a mortgage. To begin the pre-approval process, search for a mortgage broker or financial institution you’d like to work with, find their form, and submit the requested documents. After they process the information, they’ll decide upon your eligibility and send you an approval letter, which you’ll then use to house-hunt and secure the mortgage. 

Final thoughts

Getting a mortgage is both stressful and very exciting, as it represents the first steps to moving into a beautiful home. It can be a confusing process, especially as you start out on securing a mortgage, but there’s help to guide you through the process. By building your credit score, paying down your debts, finding a great mortgage broker, and working through the pre-approval process, you can soon be signing a mortgage and stepping into your very own house.