You finance a big purchase right before applying
When you apply for a mortgage, the lender looks at your debt-to-income ratio. This ratio measures how much of your gross monthly income is consumed by your monthly debts. Most lenders want your monthly debts, including your estimated new mortgage payment, to be no more than 43% of your gross monthly income. If you finance a big purchase, such as a new car, that results in large monthly payments, your debt-to-income ratio will rise, which will give lenders pause. You might want that new car, but it’s best to wait until after you’ve earned approval for your mortgage.
You pay your credit card bill late
When determining whether you qualify for a mortgage and at what interest rate, lenders look at your three-digit FICO credit score. If you pay certain bills (such as your credit card) or loans (such as auto, student or personal) 30 days or more past their due date, your credit score might drop by 100 points or more. Establish a history of paying all your bills on time before you apply for your mortgage.
You close a credit card account
Closing a credit card account that you no longer use couldn’t hurt your chances of qualifying for a mortgage, could it? Yes, it can. That’s because it affects your credit utilization ratio, a measure of how much of your available credit you are using. The less of your credit you use, the better for your credit score. If you close a credit card account, even one you no longer plan to use, you reduce the amount of credit available to you. Similarly, if you carry debt on your credit cards from month to month, the debt will automatically increase your credit utilization ratio, perhaps causing your credit score to drop.
You don’t save enough
When you take out a mortgage, you have to make a down payment. This can equal 3% to 20% or more of your home’s final purchase price, depending on how much you want to put down. But that’s not the only cost you face when taking out a home loan. You’ll also have to cover closing costs on your new loan, which can equal 3% to 6% of your loan’s final amount. To improve your odds of qualifying for a loan, you should have enough in your savings account after paying these costs to cover at least two months of your monthly mortgage payment. Make sure, then, that you’ve boosted your savings before applying for a mortgage.
You don’t check your credit reports
You can order a free copy of each of your three credit reports from AnnualCreditReport.com. Do this before applying for a mortgage. These reports list your open credit card accounts and loans and how much you owe on each of them. They also list any late payments you’ve made in the past seven years or any foreclosures or bankruptcies you filed in the past seven to 10 years. It’s important to check these reports before you apply for a mortgage. If there are any errors — such as a late payment that you know you paid on time — you should correct them before applying for a loan. Erasing credit report mistakes can provide an instant boost to your credit score.
Claudine Steinfurth
REALTOR®
(216) 409-4039
csteinfurt@aol.com
RE/MAX Above & Beyond
7570 Chippewa Road
Brecksville, OH 44141
