Can You Qualify for that New Mortgage?

The Federal Reserve continues to hold short and long-term interest rates to historic lows. This may be one of your last opportunities to lock in great interest rates well-below 6%.

So, we put together a brief checklist for you to follow in order to make sure that the process goes smoothly for you.

First, it is a good idea to check your credit report to make sure there will be no surprises when your lender takes a look at it. You can get a free copy of your credit report and credit score at free credit score.

Remember a score above 700 usually means you will get the best interest rates. Usually a rate below 680 is considered to be of higher risk and so the lender requires a higher interest rate to mitigate the increased risk of loss.

If you find any incorrect information in your credit report, be sure to get it cleaned up before applying.

Cleaning up negative items from your credit will also ensure that you get a better credit score. For information on how to get your credit cleaned up before you get that new mortgage.

Next, list out all of the debts reported on your credit report and add up all of the monthly payments. Also include what your payment would be with your new mortgage.

In order to estimate your monthly payment with a mortgage interest rate of 4.25%, you can use $10 per thousand dollars of mortgage. So
for example, if you need a $150,000 mortgage, then multiply 10 times 150, which equals $1500 per month.

Add this payment to the other monthly debts listed on your credit report and this will be your total debts.

Now take out your most recent paycheck stubs to do a debt-to-income calculation. The calculation is done by taking the total debts from above and dividing this number by your gross monthly income.

The ratio should be less than 40%. If your ratio is too high, then you need to do your best to start paying down your debts. The quickest way to do this is to follow the debt plan. We'll include more information about debt plans on this blog.

The final item that you will need to provide to your lender is documentation that shows your assets such as bank account statements, 401(k) statements, any cash value of life insurance, etc. Your lender wants to see where your down payment will be coming from.

You are now ready to check for the best rates and start looking for a lender. To get free rate quotes with no obligation and no credit check, feel free to visit us at free credit score. (just click on the banner).