♥ Decrease the percentage of your income that goes into paying debts (your debt-to-income ratio). According toBank of America, keeping your debt at a manageable level is a requirement of good financial health. Your debt-to-income ratio compares yourmonthly debt expenses to your monthly gross income. To calculate your ratio, add up the payments youmake toward debt during amonth. That includes yourmonthly credit card payments, car loans, other debts (such as payday loans or investment loans) and housing expenses — either rent or the costs for your mortgage principal, plus interest, property taxes and insurance (PITI — Principal, Interest, Tax, and Insurance) and any homeowner association fees. Next, divide your monthly debt payments by your monthly gross income — your income before taxes are deducted — to get your ratio. (Your ratio is often multiplied by 100 to show it as a percentage.) For example, if you pay $400 on credit cards, $200 on car loans and $7,400 in rent, your total monthly debt commitment is $8,000. If youmake $300,000 a year, yourmonthly gross income is $300,000 divided by 12months, or $25,000. Your debt-to-income ratio is $8,000 divided by $25,000, which works out to 0.32, or 32 percent. While the preferred maximum varies from lender to lender, it’s often around 36 percent. ♥ Beware of applying for credit. You want your credit score as high as possible when applying for a mortgage. Thus, you should try to avoid getting more credit, especially when your underwriter is deciding on your mortgage. Every credit application you fill out during this time could lead to an inquiry that might significantly decrease your score. ♥ Keep your credit clean before purchasing a home. When it comes to your credit and purchasing a home, you must be extremely careful how you handle your money. One wrong move and you can wave goodbye to your new home. In the case of purchasing a new home through an application for a mortgage, it’s best to wait before taking out any credit cards or applying for car loans. If it’s impossible to wait, make sure you speak to your loan officer or mortgage broker for some advice. You do not want to risk losing your home loan.
20
Powered by FlippingBook