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Building Blocks for Mortgage Success

Building Blocks for Mortgage Success

In order to build the perfect plan for your new home, you’ll need to know what your credit score means, how much you can get approved for and how much house you can afford. A better understanding of these three things helps make the process easy.

What does my credit score mean?

Your credit score is one of the most important factors considered when you apply for a mortgage. The higher your credit score, the lower the interest rates you’ll qualify for. A higher credit score also means you’re more likely to pay your loan back and make on-time payments.

That's why it's so important to understand the breakdown of your credit score. If you have bad credit, you'll want to work on improving your score before applying for a mortgage. If you have good credit, you'll want to make sure you maintain it by avoiding taking on any new debt before you apply.

How much can I get approved for?

In addition to your credit score, your debt-to-income (DTI) ratio and loan-to-value (LTV) ratio also influence how much you can borrow.

Your DTI ratio is all of your monthly debt payments divided by your gross monthly income. This is how lenders determine that you aren't taking on more debt than you're able to pay back. Generally speaking, the lower your debt-to-income ratio is, the more likely you'll be to qualify for a mortgage. If you find that your DTI ratio is too high, think about how you can lower it. You could pay down your credit cards, reduce other monthly debts, or find ways to increase your income. 

The LTV ratio compares the amount of your mortgage to the apprised value of the property. The higher your down payment, the lower your LTV ratio, which can then result in lower rates and lower monthly payments.
 

How much house can I afford?

Just because you get approved for a large sum doesn’t mean you can afford a house in that price range. Once you find a house you love, you should calculate your monthly payment in order to get a better idea of how much you’ll owe each month prior to taking on the commitment.

It's also important to consider all homeownership expenses before making a decision. Big expenses like your insurance and taxes can sometimes be built into your monthly payment, but you’ll also need to think about upkeep, maintenance, utilities, new furniture, upgrades, etc. 

Buying and owning a home can seem like a huge undertaking. That's why we're here to help you out! If you think you're ready to apply, or have some more questions, contact one of our mortgage specialists today.
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