Buying a home can be ideal for those who are looking to put down roots in their community. It can also be a good decision for those who are looking to acquire an asset that will appreciate in value over time. What financial steps will you need to take to ensure that you can qualify for a mortgage?
Your Credit Score Should Be 640 or Higher
Most lenders require that your credit score is at least 640 to qualify for the lowest interest rates. Having a good credit score may also make it easier to negotiate a lower down payment without the need to pay for private mortgage insurance. It may be possible to improve your score by lowering your debt-to-income (DTI) ratio or by getting inaccurate information removed from your credit report.
Increase Your Cash Reserves
If you are looking to get a traditional mortgage, the size of your bank balance may influence a lender’s decision to approve your application. It is generally a good idea to have reserves equal to two or three months worth of expenses. This shows a lender that you will be able to continue making mortgage payments in the event of a job loss or an unexpected medical or other expense.
There are many different sources of income that a lender will use when determining how much money you can borrow. For instance, you may be able use wages from a job, profits realized from sales of stock or self-employment income to qualify for a mortgage. Therefore, you may want to consider selling stock that has appreciated in value, getting overtime at work or becoming an Uber driver for a few months.
Can You Get a Mortgage If You Have a Structured Settlement?
Structured settlements allow you to receive cash payments each month related to a personal injury case. While you don’t necessarily claim those payments on a tax return, a lender will take them into account when reviewing your loan application. As long as the payments can cover the mortgage and will continue to come in for the next several months or years, they could be enough to qualify for a mortgage.
While the process of getting a mortgage can be complex, you can make it easier by getting organized before sending in your application. A mortgage broker or lender may be able to provide insight into what you should do to streamline the process of getting a home loan.