What You Need to Take Out a Mortgage Pt. 1

If you’re starting the journey toward homeownership, you’re going to need to get a mortgage to get you started. And in doing so, there are quite a few things you’ll need to know. We’re going to break down exactly what qualifications you need and how you can get started and hopefully find the house of your dreams.

1. Land your credit score in the right place. To buy a house, you’ll need to first make sure that you have a credit score that will qualify you for a mortgage. You can either do a soft credit check on websites that offer it for free (like Credit Karma) or you can do a hard inquiry through a bank. However, keep in mind that if you do a hard check into your credit score that you can only do one per year or you will actually end up hurting your score and it will go lower.Of course, the higher your credit score, the better for you. Your score needs to be at least 620 for a conventional loan and could be as low as 500 for an FHA loan. A few tips for getting a higher credit score are:
   – Use 30% or less of your available credit.
   – Pay all your bills on time.
   – Keep old accounts open rather than closing them out.
   – Don’t open new credit accounts before taking out a mortgage.
   – Dispute any errors with creditors and credit bureaus.
2. Look into your debt to income ratio. A mortgage lender will want to know how much debt you have before they approve you for a house loan. And similar to wanting to have a high credit score to get your mortgage, you’ll also want to make sure that your debt isn’t very high comparatively either. There are various calculators online that will allow you to figure out what your debt to income ratio is to determine if you’re a good candidate for a mortgage or not.
3. Consider your down payment. Most lenders believe the best down payment for a house to be 20% of the total cost, and though it is a high cost up front, it means that you won’t need to pay for private mortgage insurance (PMI), which costs between .5% and 1% of a loan. Many people, however, put down less than 10% of the total mortgage for their down payments. For instance, an FHA loan will allow for as little as 3.5% as a down payment on a house. Some Veterans Affairs mortgages don’t require any down payment, however, those are usually only for people who are former or current veterans.