taxes and insurance (PITI — Principal, Interest, Tax, and Insurance). 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, $600 on car loans and $3,000 in rent, your total monthly debt commitment is $4,000. If you make $150,000 a year, your monthly gross income is $150,000 divided by 12 months, or $12,500. Your debt-to-income ratio is $4,000 divided by $12,500, 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 mortgage officer or mortgage broker for some advice. You do not want to risk losing your mortgage.
TIPS TO BE PREPARED
When it comes to taking out a mortgage with a mortgage broker, you are going to need to be prepared. This means you will need 20
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