Have you been wondering if you should refinance your home, or buy a new one?
Did you realize that banks can still reject you with an excellent credit score?
There are 3 main things a bank will look for to determine whether you should get that loan, that in some cases, could save you hundreds, or even thousands, of dollars each month!!!
Here they are....
- Cash Reserves - Do you have 6-12 months of house payments saved in case you lost your job or had a financial hardship. For example, if the house payment would be $1,500 a month, they would want to see at least $9,000 in savings. If you are trying to purchase the home, they will want to see this AND the down payment in savings for the last 2 months or so. If you are currently draining your savings, even slowly, they may deny the loan.
- Credit Score - This is still important, but not always necessary. Having at least a 680 credit score is preferred. The ideal is 740 and above. Presuming everything else is in order, you likely qualify for the best interest rates. WARNING - DO NOT APPLY FOR OTHER LOANS WITHIN 90 DAYS OF APPLYING FOR A MORTGAGE. ALSO, DON'T CANCEL CREDIT CARDS AFTER PAYING THEM OFF! THIS COULD RUIN YOUR CHANCES!
- Low Debt to Income Ratio - Banks don't care how much you owe. They only care how much you are required to pay each month. This is the opposite of how most people think. Most people think stress comes from "having a lot of debt." This isn't true. Stress happens when you can't make your monthly payments. Banks know that you are risky with high monthly loan payments compared to your income. This is why it's typically unwise to have a 10 or 15 year mortgage. If things go wrong, you are stuck with a bigger payment AND the bank is more willing to foreclose on you. As a rule of thumb, you don't want your mortgage payment much more than 25% of your income. Your total monthly payments shouldn't be much more than 40% of your income. For example, if your gross income is $5,000 a month, you don't want a mortgage payment much higher than $1,250 a month, and your total payments shouldn't exceed $2,000 a month. If you need to get your total monthly payments lower, pay off the loan that has the highest monthly payment for the smallest balance, NOT the highest interest rate. The bank will like it more, and you will get that loan faster.
If you can meet these 3 criteria, you'll have a good shot at getting the loan. Lately, I've had several clients refinance their homes to cash out equity to improve their cash flow. For some, they save a few hundred a month. For others, it can be $1,000 or more each month!
We've even had people qualify for homes that couldn't qualify previously, even though they have made on time payments for years!
Don't let a few obstacles stop you from getting that loan that could get you the home you want, or free up the cash that could be the difference between financial peace and financial bondage! It might be easier than you thought.