Am I ready to buy a home?
Buying a home is one of the biggest financial decisions you can make. A great first step to deciding if you’re ready is to get pre-qualified by a mortgage loan officer. When you get pre-qualified, this means talking to a mortgage professional about your financial situation. The mortgage lender then helps you determine if you are financially ready to move forward, as well as giving you an estimate of what you can afford. Pre-qualification is a quick and easy way to figure out if you have the credit, savings, and income needed to get approved for a mortgage.
How do I get approved for a mortgage?
Before getting approved, you should get pre-approved for a mortgage. Pre-approval is much more detailed than pre-qualification. Getting pre-approved is when mortgage professionals take a closer look at your records and documents (such as credit history, proof of income, W2’s, etc), so they can verify (a) whether you can get approved, (b) what conditions apply to your loan, and (c) your maximum loan amount. After pre-approval, you still need to apply for a mortgage, but getting a pre-approval makes the mortgage application much easier.
(To learn more about pre-qualification and pre-approval, click here.)
What type of home loan is right for me?
There are different options when it comes to the types of mortgages you should consider. Everyone’s situation is unique, so it’s important to carefully weigh the pros & cons of each mortgage type. For example, if you know you will pay off your mortgage in just a few years, then an Adjustable Rate Mortgage (ARM) may work great for you. Or rather, if you want to keep your monthly payments as low as possible, then consider a 30-year fixed rate mortgage. To better understand the different types of home loans, take a look at the following pages: FHA Loans, Conventional Loans, Adjustable Rate Mortgages (ARM), VA Loans, 15-Year Fixed Mortgages, 30-Year Fixed Mortgages.
While it’s great to learn about these different kinds of loans, you should also speak to a mortgage professional before deciding what option is best for you.
What is a debt-to-income ratio?
Your debt-to-income ratio (DTI) measures how much of your gross monthly income goes into paying off debts (auto loans, student loans, credit cards, etc). For example, if one-fourth of your monthly income goes toward paying off debt, then your DTI is 25%. The lower your DTI, the better chances you have of getting approved. Lenders look at the DTI to see how hard it may be for someone to pay their bills. For most mortgage types, it’s very difficult to qualify with a DTI of 50% or greater. Generally, loan officers prefer you have a DTI of 43% or lower.
Refinancing: what does it mean?
Basically, refinancing means replacing your existing loan with a new one. Refinancing can be helpful when it comes to lowering your interest rate, reducing your monthly mortgage payments, or shortening the term of your mortgage. You can also think of refinancing as converting your current mortgage into a different loan type. For example, FHA loan holders have the option to refinance their FHA mortgage into a conventional mortgage.
While there are many good reasons for some mortgage holders to refinance, it is still a big decision that should not be taken lightly. Before buying a home, it’s a good idea to know what refinancing options are available later down the road. If in the future, you’re considering refinancing, make sure to speak to a mortgage loan officer to determine whether refinancing is right for you.
Can I qualify for a mortgage with non-traditional income?
Non-traditional income has to do with people who are self-employed, have fluctuating income, or have a unique financial situation. People with non-traditional income may have the means to buy a home, but they don’t necessarily have the documents that are usually required to get approved. However, there are programs called Non-Qualifying Mortgages (Non-QMs) for borrowers with non-traditional income. So yes, it is possible to qualify for a mortgage if you fall into this category.
