When searching for a new home, you may come across some conflicting information, especially about home financing or mortgage loans. Consider these six money tips to help you navigate the process.
- Know Your Credit Profile: Your credit score may impact the interest rate or the amount of money you can borrow. Having great credit is certainly helpful, but not required. Homebuyer education and home loan financing programs are making it easier for homebuyers with a range of credit scores or limited credit history to obtain a loan.
- Manage Debt: Another important factor mortgage lenders evaluate is debt-to-income ratio. A good rule of thumb is to keep your total debt level at or below 36 percent of your gross monthly income.
- Show Them The Money: A recent Wells Fargo survey found that more than a third of people believe you need 20 percent of the home purchase price to make a down payment. The reality is, some home financing programs allow qualified homebuyers to put down as little as 3 percent. And for those who qualify for special mortgage programs (i.e. military veterans, rural properties, etc.) a down payment may not be required at all.
- Demonstrate Proof of Income: Home mortgage financing programs are available for a range of incomes. The key is to demonstrate your ability to repay the loan. Lenders will review your income history and require current W2 tax forms, tax returns or similar documentation.
- Have a Rainy-Day Fund: Lenders want to see that you have savings or a cushion to handle unexpected expenses that come with homeownership, such as a leaky roof or failing appliance.
- Get Pre-Approved: Getting pre-approved is a good way to understand what kind of home loan product or program you may qualify for.