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Top 4 things you should do to be in mortgage shape

As we enter the home stretch of the summer, many people are still trying to purchase a home before the start of the school year.  If you are serious about buying and plan on applying for a mortgage, then it is always a good idea to be in excellent “mortgage shape” so you can be approved quickly.  Here are the top 4 things you should do to be in great mortgage shape to buy a home:

#1Credit

Cash may be King but credit is a close second.  It is very important to have a good credit score these days and it will determine your interest rate on your mortgage.  The higher the score, the lower the rate.  You want to try and maintain a credit score of 740 or above to achieve the lowest possible interest rate.  You can qualify for a mortgage with a score as low as a 620 but you may pay a higher rate for any score that is below a 740.  There are numerous credit monitoring companies out there that advertise as being “free” but you will soon find out after enrolling that they are anything but free.  I recommend www.annualcreditreport.com .  Once a year they can produce your real scores by providing an accurate credit report from all three major credit bureaus for free!

#2Employment

You want to make sure you have been employed for at least two years.  If you are a salaried employee, you do not have to be with the same company for two years but rather be able to show a two-year work history.  If you happen to start a new job, then you just need to wait a minimum of 30 days before you apply for a loan.  You also want to make sure you do not switch companies or start a new profession during anytime throughout the loan process.  If you are self-employed, then most lenders require that you have been self-employed for a minimum of two years before you apply for a loan.  There are some special programs that can use one year of self-employment to qualify but that is an exception.

#3Income

When applying for a loan, a lender will review your last two years of tax returns along with your recent paystub to determine your average gross monthly income.  For a salaried employee, the gross income (before taxes) is always used when calculating your income. But, if you happen to write off any un-reimbursed business expenses on schedule A of your tax return, then this amount will be deducted from your gross income so be careful what you are deducting and make sure you check with your accountant.  For self-employed borrowers, we use the adjusted gross income so this is the income left over after any deductions.  Self-employed borrowers typically write off numerous business expenses so they need to be careful that their adjusted gross income is not too low or else it will be difficult to qualify for a loan.  You want to make sure your debt to income (DTI) ratio is below 45% to qualify for a mortgage.  This is determined by taking your total monthly debts that show on your credit report including the new proposed mortgage payment and dividing that by your gross or adjusted gross monthly income.

#4Assets

It is very important to have enough money saved up for the down payment, closing costs, and a cushion left over for reserves.  Reserves are considered the monthly amount of your mortgage payment that is saved in your bank account.  I would recommend having at least 3-6 months of reserves when buying a home.  This means if your total monthly mortgage payment is $2500 then you want to have at least $7500 – $15000 remaining in the bank after you purchase the home.  You also want to make sure you can properly source any funds you need for closing.  If you deposit cash, that is going to be impossible to source unless you have it seasoned in your account for at least 60 days.  Make sure any and all large deposits can be properly sourced when you are within 60 days of buying a home.

If you have any questions about this topic please do not hesitate to contact me. To learn more about our company and mortgage products, please feel free to call Dan Longman, President of Priority Lending Corp, at 954-438-3776 ext.11 or email me at prioritydan@bellsouth.net. Visit us online at www.prioritylendingcorp.com

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