Shop for mortgage before shopping for a house

Buying a home is one of the finer things you can do for the family or even yourself. But, before you start shopping for that home you have always wanted, it is best to visit your mortgage lender to determine your qualifying status to purchase it.

A short visit can establish a plan for finding that dream house that will work with your financial status. A pre-qualifying visit to your credit is in order, as it is best to see your lender before looking at that dream house. It is not unusual to learn it may take six months or more of paying off current debts.

It is a matter of timing. If you find your dream home and then discover it will take six months or so to straighten out your finances you stand a very good chance that your dream home will have been sold to someone else.

Mortgage underwriters look at a variety of factors in evaluating a loan application. Some of those factors are impacted by debt owed by the applicant.

Debt-to-income ratio measures monthly debt payments against monthly income. This would probably include the mortgage payment, car payments, credit cards and any other kind of debt. Different lenders use different formulas.

For a conventional loan this ratio should not exceed about 30 percent. FHA or VA loans allow up to 41 percent.

What is your net worth or total assets minus liabilities?

Lenders want to be sure that borrowers have demonstrated an ability to manage their financial affairs. They also want to see that there are adequate financial reserves to cover the home purchase and two to three months’ savings in case income stops due to loss of a job or other emergency.

Here, again, large amounts of credit card debt with little to show for it will make it harder to qualify for a loan.

Credit history is not a secret. It would show up on the applicant’s credit report. Any negative information could result in a credit score too low to support the home loan you wanted. If that is so, meet with your mortgage lender first and provide honest answers about income and other debts. You can learn if you are likely to qualify for a loan or not.

If you do not qualify, you can get valuable information about the steps you need to qualify for the loan and how much you are able to borrow for the home. Then, you can shop for your dream house knowing just what it will take to purchase it.

If too much credit card debt is keeping you from getting that home, consider making an appointment at Consumer Credit Counseling Service. There is no charge.