How To Get A Reasonable Mortgage
To get a home loan with the lowest mortgage rates on the market you first need to
meet certain criteria such as high credit score, low debt to income ratio, and cash reserves. Mortgage lenders will look at all 3 factors when determining what mortgage rate and term can be offered to you.
The most important is your credit score. A quick way to improve your credit score is to adjusting the percentage of the credit limit you have used. Lets say you have a credit card with a limit of $10,000 and you have a balance of $2,000 your credit score will be significantly higher than if you had a balance of $8,000. Thats because 35% of your credit score is based on factors from revolving credit i.e. credit cards. The credit bureaus have several tiers based on your credit line, each time you cross a tier it will lower your score. One quick solution is to contact your credit card company and ask them to increase your limit. In the example of $8,000 above if you had your limit raised from $10,000 to $20,000 you would automatically lower your ratio from 80% down to 40% . Another solution is to pay it down, generally using 33% or less of your credit limit will have minimal impact on your credit score and is the ideal situation for having a higher credit score. Another option would be to transfer some balances on to other cards that are under 33% to spread it across several cards.
The second factor lenders look at is your debt to income ratio. Lets say a couples gross income is 8,000 per month. Depending on your credit rating lenders will allow a percentage of your gross income to be applied to a home mortgage, minus your other debts such as auto loans, credit cards, installment loans, and so on. If the lender allows 45% debt to income ratio that means 45% of your $8,000 can be used to pay obligations. That would leave $3,600 allowable for all expenses. Lets say the couple had $600 auto payments $300 credit card and $200 in an installment loan payment. That would leave $2,500 for their mortgage which would have to include taxes and insurance payments along with any condo or hoa fees.
The third factor is cash reserves, depending on the type of loan you get this might and might not be a factor. Traditional mortgages will want to see at least 2 months worth of reserves after your down payment on the home and closing cost fees. Lenders want to ensure two things, first that the person is able to show responsibility in their finances by saving money, and second that there are funds available in the event of an emergency that would enable them to keep paying for their mortgage and not default. This is typically verified by getting the last 2 months worth of bank statements.
Now that you know what factors the lenders are looking for, you need to find that lender that is going to give you the best mortgage rate. Traditional shopping involves contacting multiple banks / brokers via online or by phone. Each institution would have to check your credit one by one putting numerous inquiries in to your report. Some will even give you a bait and switch, offer you a low rate in the beginning, and change the rate on you a few days before closings due to something that was discovered by the banks. Aside from that you will continue to receive phone call after phone call making the entire process a nuisance.
The website brokerbids.com allows you to submit one application through their
mortgage bids process and receive up to 15 offers without any phone calls. Your credit report receives only one inquiry and your application is made available to their network of brokers which review your application along with employment history, credit rating, balances, payment history, but not your social security number, not your phone number, not your address. You get to review their offers and print out a good faith estimate provided for each offer, once you found the best deal you may select that brokers offer as the winning bid. After that, your contact information is exchanged, and youre ready to being working with your broker. Once your needs have been met, you may leave a feedback rating for your broker. This helps future consumers in evaluating that broker, and also keeps them from changing the rate / terms as many in the industry do.
by: Stacy Williams
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