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For most Americans purchasing a home is the biggest investment they will ever make.  Buying a new home is exciting, but it’s also a big decision. At Best Rates Mortgage our highest priority is finding you the ideal financing for your dream home.  We educate before we execute, and we put the needs of our clients first.

Pre-Qualification


DO NOT, go looking for a home or put an offer in on a home you want to buy until you have been pre-approved by a lender.  You want to avoid finding your dream home only to find out you do not qualify for it.  Therefore, the very first step is to call a lender and get a pre-qualification letter to see exactly what loan amount you qualify for and can afford.

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Fair Credit


You must have “fair” credit if you want to purchase a home.  “Fair” credit means that you have a credit score which is a 580 or above.  Remember, the credit score being used on a mortgage is different from Free Credit Reports you can receive online and different than your estimated score your credit card company may provide to you.  The credit score used to qualify you for a mortgage a what is called a “Tri-Merged Credit Score”, meaning 3 scores are populated from all three credit bureaus – Tran Union, Equifax, and Experian.  Each bureau will give you a score, and the score used to qualify you is based on the middle score.  For example, if Trans Union gives you a score of 620, Equifax gives you a score of 682, and Experian gives you a score of 652, the score used to qualify you will be 652.  Therefore, your middle score must be at 580 or above to qualify for a mortgage.

Tri-Merged Credit Score 580 +

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Self- Employed

If you are self-employed you must show two consecutive years on self-employed income.  The qualification will based on the average of your two years of self-employed income.  Therefore, add last year’s income and the previous year’s income, and divide by two to determine the income that will be used to qualify you for a loan.

W2 Wage Earner

If you are a W2’ wage earner you must have been at your job for 6 months in order to use your income to qualify.  There is no two year requirement, you must only have worked at the job for 6 months or longer to use the income.

Debt-to-Income Ratio


To qualify for a mortgage you must have a debt-to-income ratio that does not exceed 50%. What this means is that after all your monthly bills are added up plus your new mortgage payment, it must not be more than 50% of your monthly income.

The debt-to-income ratio is one of the qualifications that is often overlooked by first time home buyers.  For anyone who intends to buy a home one day, it is very important that you are considering this metric each time there is a decision to be made about incurring more debt from credit cards, car loans or other sources.

In many cases, a debt-to-income ratio can be quickly improved by utilizing cash on hand to pay down existing debt before applying for a mortgage loan.  We will consult with you to make sure you make the best possible decisions about your debt-to-income ratio.

Debt-to-Income_Ratio

Expenses


Expenses that are included in your monthly debt-to-income ratio include: (1) Car payments, (2) minimum payments due on credit cards, (3) loan payments, and (4) life insurance payments to name a few.  To be safe, add up any payments that you are making on a monthly basis plus your estimated mortgage payment and divide by your gross monthly income to determine the maximum mortgage payment that you can afford.

common monthly expenses

  1. Car payments
  2. minimum payments due on credit cards
  3. loan payments
  4. life insurance payments

Down Payment & Cash Reserves & Fees


If you are buying a $200,000 home you will need to put down $6,000 on the loan. Please be aware of other fees involved with purchasing a home as well.  There are title fees, appraisal fees, and credit report fees to name a few.  Therefore, when purchasing a home you should have a couple thousand dollars more than your down payment just to be safe.

Earnest Money


When purchasing a home you must put down earnest money with the Realtor that is selling you the home.  Earnest money is usually $1000 down, which will be applied to your down payment if it closes.  If the home does not close or you change your mind for any reason the earnest money will be forfeited.  The earnest money is required to guarantee that no one else can come and make an offer on the property that you are trying to buy.  The earnest money reserves your spot in line so to speak, and protects you from buyers trying to come in and offer more for the property than you did while you are under contract to purchase the property.

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$1000 down,

will be applied to your down payment if it closes.

Tools & Resources


Mortgage 101
Mortgage calculator
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