5 Tips For Getting a Mortgage in Today’s Housing Market

As a result, about a third of home purchases are being made by people — investors, foreign buyers, or wealthy Americans — who just plunk down cash for a house. That’s great if you happen to have $213,500 — the average amount of an existing-home sale in July, according to the National Association of Realtors — laying around, but if you don’t, here are some tips on how to give yourself the best shot at getting a mortgage.

Improve your credit score. ”Credit is getting a bit looser recently, but even people with high credit scores are being denied loans,” says Jed Kolko, economist at real estate site Trulia.com, an observation that’s borne out by that Ellie Mae data. Order your credit report from annualcreditreport.com so you know what you’re dealing with, especially if you’ve never checked your credit before. Getting any mistakes corrected should be your first order of business. After that, look to lower your utilization ratio — the percentage of your available credit you’ve used at any given time. The typical rule of thumb is to keep it under 30%, but lower is better.

Don’t open any new cards. This is old advice, but it’s even more important now that lenders have such high expectations. You might think adding a new credit card would help your utilization ratio, but applying for credit shortly before or during the application process pulls down your credit score. It could be only a few points, but that could affect your rate and even whether you’ll be approved for a loan at all.

Here’s the exception to this rule: If you’re new to the world of credit, apply for the best credit card you think you can get six months or more before you plan to begin the mortgage application process. Since you’ll ding your credit score a little bit, you want to space it out so you get the benefit that credit has on your utilization ratio without taking the hit for opening the new card.

(MORE: Rising Interest Rates and the Fate of the Housing Market)

Put more money down. ”Zero-down loans are rare nowadays compared with the bubble years,” Kolko says. That said, don’t despair if you don’t have 20% of the purchase price saved up.

“Lenders are more willing to work with consumers these days even if someone doesn’t have a perfect score,” says Ken Lin, CEO of CreditKarma.com. “For example, if you have a little lower credit score, but can put down 20% or maybe you only have 5% to put down but a great credit score, you can still qualify for a mortgage,” he says.

Pay down your debt. “Because home prices are rising faster than incomes, and also because mortgage rates are rising, the debt-to-income ratio will become a hurdle for more buyers,” Kolko warns. He says monthly payments have risen 20% in just a year thanks to the combination of rising home prices and interest rates.

“When you think about just your housing costs, your debt load— which includes taxes and homeowners insurance — should be 28% or less of your gross monthly income,” Lin advises. But once you add debt from credit cards and auto and student loans, the amount shouldn’t be higher than 36% of your income, he says. The Ellie Mae data shows that successful mortgage borrowers have an average housing debt-to-income ratio that’s even lower, at 24%.

Give yourself more time than you think you need. Improving your credit score and socking away a down payment takes time. Lin suggests giving yourself a six-month head start. In theory, credit report errors can be cleared up in 30 days or less, but an investigation last year found that getting even simple stuff fixed can drag on for months in some cases.

Read more: http://business.time.com/2013/08/29/5-tips-for-getting-a-mortgage-in-todays-housing-market/#ixzz2dfIolZYL

Business & Money

You want to beat the rising cost of homes and increasing interest rates by buying a home soon — but are you going to be able to get a mortgage? 

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7 thoughts on “5 Tips For Getting a Mortgage in Today’s Housing Market

  1. Pingback: What does it take to get a mortgage today? – Half Moon Bay Review : Community | Kentucky First Time Home Buyer Mortgage Loan

  2. Pingback: Signs of credit-score easing for buyers as market softens | Business & Technology | The Seattle Times | Louisville Ky Mortgage Rates

  3. Pingback: Ditch your spouse when buying that house – NASDAQ.com | Kentucky First Time Home Buyer Mortgage Loan

  4. Based on the worst credit score

    “Your spouse’s lower score might make it hard to get a mortgage or get a mortgage at a good rate,” says Anthony Sprauve, director of public relations with myFICO.com in San Jose, Calif.

    “Lenders don’t take an average between your two scores.”

    Rather, mortgage lenders base their loan decisions — including the mortgage rate — on the lowest credit score between you and your spouse, says Don Frommeyer, president of the National Association of Mortgage Brokers

    If your credit score is 800 and your spouse’s 650, lenders will assign an interest rate based on your spouse’s lower score, he says.

    “It’s worst-case scenario,” Frommeyer says. “Even though one spouse might have a great credit score, it’s all based on the worst score.”

    Applying for a mortgage on your own brings up another challenge

    Lenders also look at your debt-to-income (DTI) ratios when deciding who qualifies for home loans Most lenders want your total monthly debts — including your newly estimated mortgage payment — to equal no more than 36 percent of your income before taxes are taken out. If you are relying solely on one income, leaving the money generated by your spouse on the sidelines, you might struggle to meet the lender’s DTI ratio. You might be forced to apply for a smaller mortgage loan on a less expensive home.

    Read more: http://www.nasdaq.com/article/ditch-your-spouse-when-buying-that-house-cm280618#ixzz2g6NFxqXI

    What options do you have?

    Go at it alone: If your income is high enough, or if you and your spouse aren’t opposed to living in a smaller, less expensive home, it might make sense to apply for a mortgage on your own, especially if your spouse’s credit score will leave you with a more expensive mortgage.
    FHA: If a spouse’s credit score is making conventional financing difficult, consider a mortgage insured by the FHA. While the FHA doesn’t have specific credit score requirements, FHA mortgage lenders typically reserve the best rates for borrowers with credit scores of 620 or above, says Keith Gumbinger, vice president of HSH.com.
    Credit rehab: If you’re dependent on both incomes, it’s time to help rehabilitate your spouse’s credit. Your spouse can boost their bad score by paying bills on time and in full every month, fixing any credit-report errors, eliminate disputed accounts, and keeping credit lines open but learning to use them wisely.

  5. Pingback: The difference between a front-end and a back-end debt-to-income ratio for a Kentucky Mortgage Loan FHA, VA, KHC, USDA, Fannie Mae | Louisville Ky Mortgage Rates

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