Buying a home is a major investment, and it has many benefits. You can improve your credit score, save more money, and you don’t need to sweat unexpected rent increases every year. However, there are several factors that can impact whether you qualify for a mortgage to buy a home.
It’s important to know the minimum borrowing guidelines for a mortgage to help you find the best possible loan program for you and your family. That said, here’s what you need to qualify to buy a new home for sale.
A decent credit score
Your credit score is important when it comes to purchasing a mortgage. The better your credit score, the better the mortgage rates you’ll qualify for. The minimum credit score you need for a conventional mortgage is 620. However, you want to get your credit score as high as possible before you apply for a mortgage.
To improve your credit score, you can do the following:
- Pay off any remaining debt you have
- Keep your credit card balance low
- Pay off student loan debt
- Pay your bills on time
- Only apply for new credit lines or accounts when necessary
It’s crucial not to open a new credit card when an offer for a new line of credit comes in the mail. While opening a new credit card may seem like a good idea, especially during the holiday season, it’s essential that you don’t. Opening a new line of credit can hurt your chances of getting a mortgage or getting a better loan rate. Opening a new line of credit also puts you at risk for going deeper into debt, which can increase your debt-to-income ratio.
Reduce your debt-to-income ratio
Your debt-to-income ratio (DTI) is your total debt divided by your gross income. Most mortgage lenders prefer a DTI that’s 45% or lower. However, you may be able to get a better mortgage rate even with a DTI of 50% depending on if you have a high credit score. This is one of the many reasons why it’s recommended for you to pay off any of the debt that you have prior to buying a house. Not only does reducing your debt reducing your DTI, but it also boosts your credit score and makes it easier to pay your mortgage every month.
Your mortgage lender will want proof of a steady income when you apply for a mortgage rate. This ensures that you’ll be able to pay off your mortgage loan on time. If you can, consider waiting to buy a house until if you’ve had a steady income and employment history for at least two years. If you’re self-employed, you’ll need to have a way to provide additional paperwork to verify your income.
A down payment is necessary before you’re able to take out a mortgage loan. Typically, a down payment on a house is at least 3% of the home’s overall value. The lower the down payment you have saved up, the higher your monthly mortgage payments will be. It’s for this reason that it’s best not to buy a house until you have a decent amount of money saved up to put down as much as you can on a house.
Gather the right paperwork
Before you can get preapproved for a mortgage loan, you need the right paperwork on hand to provide your potential lender. The documents you need include your tax returns over the last two years, your W-2 forms from the last two years, your paycheck stubs from the last few months, proof of rent or mortgage payments over the last year, a list of all of your debts (including student loans, auto loans, alimony, and credit cards), and a list of all of your assets (including real estate, investment accounts, auto titles, and bank statements).
Find the right mortgage lender
While it’s true that you need a mortgage loan to buy a house, you don’t need to settle for just any mortgage lender. Make sure that you shop around and consult with several different mortgage lenders. Look into customer reviews and ask friends and family who have bought a house before whether they like their mortgage lender. Remember that you’re not just shopping for the best possible interest rates and fees but also a mortgage lender that you can get along with and is understanding. A mortgage lender that brushes you off during your initial consultation isn’t likely to get any better later down the line when you’re signing a loan with them.
Figure out how much home you can afford
Prior to applying for a mortgage loan, it’s a good idea to know just how much you can afford in terms of your mortgage and your home. Mortgage lenders typically use two rules of thumb when determining how much your mortgage ought to be. First, your maximum monthly mortgage payment shouldn’t exceed 28% of your gross income. Second, your maximum debt payments shouldn’t exceed 30% of your gross income. That means the amount of money you’re paying every month in credit card debt, mortgage payments, student loan payments, auto payments, medical bills, auto loan payments, and utility bills shouldn’t exceed 30% of your pre-tax income.
It’s also important to note that the size of your house will not only impact your mortgage but it’ll also impact your utility costs. The larger the house, the more you’ll need to pay to heat the house, cool the house, and light the house.
Determine the type of house you want to buy
When you’re calculating both the mortgage rates you can afford and the size of the home you can afford, it’s a good idea to also consider the type of house you’re looking to buy. Older homes can sometimes be less expensive up-front but require more repairs and have higher maintenance costs.
New construction houses are less expensive in terms of maintenance and repairs, but they can be in high demand. The homeownership rate in the U.S. rose to 65.1% in 2019 and the demand for starter homes continues to rise every year. Because of their demand, if you’re interested in new construction homes, it’s a good idea to consult with a new home construction company.
Choose home builders you can trust
When you choose to work with professional home builders, you’re putting yourself in the right hands. Home builders like WestWind Homes perform extensive soil tests, slump and slurry tests, and offer certified and sealed foundation and framing plans to ensure your new construction home is well-built and secure for your family’s safety. When our home builders have completed a house, we have third-party engineering firms inspect each house’s foundation, framing, and roof structure before certifying that the house meets the firm’s standards in accordance with Texas residential codes.
With WestWind Homes’ new home construction company, you can feel confident knowing that you’re making an investment in a house that’s built to last. You won’t need to sweat over making major repairs for decades to come. In our new construction houses, you’ll truly feel at home with your family.
The professional home builders of WestWind Homes have the new home construction services you need to give you the house you’re looking for. To learn more about our new construction homes for sale, contact the home builders of WestWind homes today.