Check Your Credit Score
Lenders use your credit score as one factor when determining your loan amount and interest rate.
- Most use credit reports from the three primary credit bureaus (Experian, Transunion, and Equifax) to evaluate your credit score.
- Generally, homebuyers with higher credit scores qualify for lower interest rates.
You can claim a free copy of your three credit reports every 12 months from AnnualCreditReport.com or by calling 877-322-8228.
Prep Your Income and Employment Information
Lenders usually require proof of income and a work history of 2 years
that demonstrates a consistent income. If you suffered a job loss due to the pandemic, lenders may factor that in.
Proof of income can come from:
- recent pay stubs;
- income tax returns;
- proof of alimony;
- child support documents; or
- other income statements.
Calculate Your Debt-to-Income (DTI) Ratio
This ratio compares your combined monthly debt payments to your monthly gross income. You’ll want to check with your lender for their DTI requirements, but generally speaking, the lower the better!
If you have a $1,500 monthly mortgage payment, a $500 monthly auto loan payment, and pay an additional $400 in student loan payments and other debt like credit cards or personal loans, your combined monthly debt payment would be $2,400.
($1,500 + $500 + $400 = $2,400)
If your gross monthly income is $6,000 then your DTI ratio would be 40%.
($2,400 ÷ $6,000 = 0.4 or 40%)
Evaluate Your Options if You Currently Own a Home
If you already own a home, you may be considering several different options. Are you keeping the property and buying a new home or do you need proceeds from the sale to purchase your next home.
Whatever the case, understanding your options and getting clear line of sight into the keep or sell scenarios is something you want to explore early.