Understanding Your Financial Situation

Prior to shopping for a home or applying for a mortgage you will need to know if you are financially ready to do so. Current mortgage regulations are not very strict and mortgage brokers will generally stretch these rules as far as they can to complete the sale. Do not rely on your mortgage broker to tell you that you are ready to purchase a home.

Someone truly ready to make a smart purchase on a home should have 20% of the purchase price to put down on the purchase as well as enough savings to live for a full year without any income. This provides security against market fluctuations in real estate value incase you need to sell your home and ensures your income will not just disappear in a difficult situation. The further you stray from this model the less financial security you provide yourself. Interest rates, fees, and mortgage insurance are also different expenses you may incur by not putting at least 20% down on a home loan.

Your FICO credit score is important but not as much as most people believe. These scores range from 350-850 with the average American being in the low 700s. Scores below 600 are high risk and may prevent you from obtaining a mortgage. People with scores between 600 and 690 can generally obtain mortgages but they will carry a higher interest rate due to them giving the lender a higher risk. Anything above 690 generally is able to take advantage of the best rates available. It is very important to understand that all factors discussed in this article will affect what type of mortgage you can obtain and at what rate. As long as you have a few loans or payments that are paid on time reporting to the credit agencies for a few years youre generally in the clear.

The last important aspect of your financial qualifications that a mortgage company cares about is your debt to income ratio. This is the ratio of current loans or payments you have in comparison to your income. Generally speaking, when you include your new mortgage it should not exceed 50%. This is also how they determine how large of a mortgage you qualify for.


Before you apply, understand the process:

Allow us to walk you through each step in researching and obtaining the proper home loan that fits you.

  1. Mortgage Introduction
  2. Understanding Your Financial Situation
  3. Choosing a Mortgage Type
  4. Shopping for a Mortgage Company
  5. Getting Your Mortgage Purchase Loan Pre-Approved
  6. Taking Advantage of Realtor Services
  7. Finalizing Your Purchase Mortgage Loan


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