The dream of every person is to one day be able to provide enough for their family to afford them their own home. Being on your own and not having to rely on anybody for your living situation is one of the most important things in life. As long as one is living under somebody else’s roof, whether as a favor for a short period or as a tenant, they cannot begin to create their own life and plan for a successful future.
In order for everything to start clicking and for the whole family to stand on their own feet, they need their own home. However, sadly, not nearly enough people can afford their own place. Some cannot do it at a certain period in life but manage to do so later, others spend the majority of their lives renting homes, and there are also those who never get to own property. For those who are struggling to right out buy the entire property at once, which is the majority of the common folk especially in this market and this day and age, there are certain benefits and programs to make use of.
One of the most popular, if not the most popular tactic that most families employ when trying to secure their first home, is to get a mortgage. You have probably heard the term before and have a certain idea of what it is. It is a widely familiar fact that it has to deal with buying property and paying it off over an extended period of time. There are down payments involved, interest rates, etc.
But are you familiar with who can get approved a mortgage and how you can increase your chance of getting one? In this article we talk about this very thing and explore the probability of getting approved for a mortgage. For more info on this, especially for Mortgage lending Pittsburgh, make sure to check out redtreemtg.com.
What Is It?
Before talking about getting approved and what you should do in order to be in that situation, you must first learn what mortgage implies and what it is. A mortgage is an agreement between a lender of the money and a person who wants to buy property. The lender has the right to take the property if the person who is lending the money does not repay it back according to the contract, alongside the interest. Mortgage loans are most often used to buy homes or put down payments on homes. There are many things to consider before taking one like the size of the loan for example, or the interest rate that bumps up the total amount you have to pay back. There are also certain fees included. Different loans have different terms and the time you have to pay it back varies based on the situation and the scenario.
Many other more specialized and unique terms exist like balloon clauses, pre-payment penalties, interest-only features, and negative amortizations. The person borrowing the money must make sure they have the means to pay it back or face losing the property and being left in a worse situation than before the mortgage loan. In theory, mortgages were made to help both sides but it is usually the lender that gets the longer end of the stick because the borrower does not plan things out well. In many situations they are not even approved to get a mortgage loan because they are considered to be a risky investment. To escape this, you need to know what to do and what not to do. Read on to find out how to increase your chances for a mortgage.
How to Get Approved
First and foremost, you need to keep your debts low or preferably not have them in the first place. Applying for a mortgage means that your debt-to-income (DTI) ration will be evaluated. This is the thing that the lenders look at first. You can calculate it by dividing your monthly debt by gross income. Things that you should include as parts of your monthly debts include stuff like rent, current mortgage plans, car payments, student loans, child support, and minimums on credit cards. If this total is not really something you can pay off and have money lying around at the end of the month, the lender will easily skip you over and mark you as a case not worth their investment. Favorable DTIs for conventional loans are around 36% and less. Qualifying for mortgages is possible with DTIs as high as 50%, with anything above that being problematic. First-time homebuyers should aim at somewhere close to 43%. If it is too high at the moment, you must first pay your debts and then start applying for a mortgage.
A Good Credit Score
Next up on the list of things lenders evaluate with every mortgage candidate is the credit score. It needs to be positive and in good shape if you want to secure a mortgage. You will require a credit score of at least 620 to secure a good loan, and the higher you manage to get it, the more options you will have and a better loan with a fairer interest rate will come your way. For the absolute best that you can get, your credit score should be at least 740. Jumbo loans usually start at over 700. Lower score loans that imply a 3.5% down payment are usually around 580. Credit utilization on your credit cards should be kept under 30%, preferably at around 25%. This is a must if you want to improve the score and get a good loan for a mortgage.
A Considerable Down Payment
Last but not least, for a great mortgage loan that will help you get on your feet and secure a great home more quickly, you can make a higher-than-average down payment. Back in the day, down payments had to be 20% of the price. Nowadays, with various programs and benefits, it can be as little as 3% which means the rates and fees will be there for a long time and they will not be fixed.
If you can secure a larger down payment, more than what is an average, you will surely be able to get a higher mortgage loan. The bigger the initial payment, the shorter the mortgage period and the more likely a lender picks you up as a safe investment.