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Mortgage Preparation Tips

Rates May Be Rising:
Mortgage and Refinancing Preparation Made Simple

Buying a home is probably the single largest investment most people make in a lifetime. By preparing yourself and your credit before a home purchase or refinance, you can ensure a smooth finance process and can potentially save thousands on your loan. Improve your financial profile now so you can take advantage of the low interest rates before they disappear.

Start by checking your credit:

• To get the best possible mortgage rate, make sure your credit history is healthy and accurate. Aim to raise your credit score above 650 in order to qualify for most prime loans.
• If your credit score is not quite 650, focus your efforts on paying bills on time, reducing your debt balances, avoiding new inquiries and clearing negative inaccuracies from your credit report.
• Make sure the information on your report is correct and fix any problems you discover. Give yourself 30-90 days for correcting inaccuracies. You can learn more about the dispute process online in the Credit Learning Center.
• Found an error while reviewing your credit with the lender? Ask about the "rapid rescoring" process where you can submit a dispute and potentially improve your credit in 72 hours.

Figure out how much you can afford

• The rule of thumb is that most borrowers can afford a home that runs about two-and-one-half times their annual salary.
• Calculate your loan-to-value ratio to see how much you can afford to borrow by dividing the loan amount by the property's value. If your loan-to-value ratio is above 80 percent your rates may increase significantly. Find a less expensive home or save up for a down payment to lower this percentage.
• Calculate your debt-to-income ratio by adding up your monthly debts and dividing by your monthly income. A debt-to-income ratio under 20-39 percent is usually considered good and will help you be perceived as financially stable.
• Don't be afraid to start small. Just because you may qualify for a large loan doesn't mean that it is a smart financial decision to buy as large a home as possible. Take a careful look at your family budget and your housing needs before you decide how much you can really afford./li>

Be a smart borrower this summer and save thousands by preparing your credit before you apply for a loan.

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