Buying a home is likely the most significant financial investment you’ll ever make, and for most people, that means securing a mortgage to finance the purchase. Unfortunately, tighter lender practices have made it more challenging to secure a mortgage. Nonetheless, there are certain steps you can take to make yourself more attractive in the eye of the lender. Read on to find the best tips to boost your chances of getting a mortgage in Fontana.
Check Your Credit Report and Fix Mistakes
Lenders assess your credit report to determine whether you qualify for a loan and at what rate. So, take a closer look at your report to see if there are any mistakes – 34% of homebuyers will find mistakes in their credit reports, which can negatively affect your credit. Errors to watch out for include:
- Repaid debts
- Incorrect notations for closed accounts
- Incorrect social security number or identity theft
- Information from a former spouse that shouldn’t be there anymore
If you find any errors in your report, you should dispute them with the relevant credit bureau.
Improve Your Credit Score
The most common credit score lenders use to determine your mortgage amount and interest rate is the FICO score, calculated from different aspects of credit data on your report:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- Credit mix (10%)
- New credit (10%)
Typically, the higher the score, the better your chances of getting a mortgage in Fontana are. You can improve your credit score by paying bills on time, reducing the debts you owe, avoiding closing old or opening new credits, and using credit cards sparingly.
Go Large with the Down Payment
A borrower with the ability to make a sizable down payment for the home purchase is deemed attractive in the eyes of the lender. Sure, you can easily secure a home loan for as low as a 3 percent down payment, but the interest rate may be very high, and your credit score must be excellent. So, it’ll significantly boost your chances of getting a mortgage in Fontana if you can make a large down payment on the house.
Essential Note: You’ll also encounter closing costs in homebuying, which can quickly add up to several thousand dollars. And depending on the mortgage type, you may need additional funds or cash reserves to secure a mortgage.
Optimize your Debt-to-Income Ratio
One crucial metric that lenders will look for when you apply for a mortgage is your debt-to-income ratio (DTI). You can calculate your DTI by dividing your total monthly debt by your gross income. Typically, current mortgage payments, rent, student loans, car payments, child support, and credit card minimums should all be included as part of your debt.
Generally, a favorable DTI for a conventional mortgage is 36% or less. But you can qualify for a mortgage with a DTI up to 50% depending on your overall credit score and financial situation. Moreover, if you’re a low- or moderate income homebuyer, you might qualify for an FHA mortgage, which usually accepts borrowers with DTI ratios of up to 43%.
To lower your DTI fast, focus on credit cards and loans with the lowest balances that you can pay off quickly. Note that even a small reduction in your DTI can make a huge difference.
Shop Around and Compare Lenders
Every lender is different in how they underwrite mortgage applications and how they assign interest rates. So, although one lender might reject your application, another one might be more willing to finance your home purchase in Fontana. Moreover, the more lenders you compare, the better your chances of finding one who’ll work with you. You’ll even improve your chances of getting the lowest interest rate for your home loan.
Choose Among the Types of Mortgages
To boost your chances to secure a home loan, you’ll have to evaluate your options and decide which type of mortgage would best suit your needs. A few key aspects to keep in mind are:
- Conventional vs. Government Backed Mortgages: Conventional loans are provided by credit unions, private banks, and online lenders. They tend to have stricter eligibility requirements and higher down payments. But if you haven’t saved much for a down payment or your credit isn’t in great shape, you can buy a home through a government-backed mortgage, such as VA, USDA, or FHA loan. Federal government insures these loans, allowing them to offer mortgages with more flexible terms.
- Fixed vs. Variable Interest Rate: Generally, fixed-rates mortgages are a safe bet since you know exactly how much your payment will be every month. On the other hand, variable rates tend to be less expensive. But the rate will reset throughout the loan term according to the current market, which could mean higher mortgage payments down the line.
Find a Cosigner
You can find a person who’s willing to cosign your application to boost your chances of getting a mortgage. A cosigner can help if you’re a low- or moderate- income borrower to qualify for the mortgage you’re asking for- the lender will examine the cosigner’s source of income before approving you. Of course, it’s vital that the cosigner has a consistent income, excellent work history, and a decent credit history.
Need Help Buying a Home in Fontana? Call the Experts!
Securing a mortgage isn’t daunting if you follow the tips mentioned above. And if you’re ready to buy a home in Fontana, the wise move is to consult a skilled real estate agent. Our real estate pros have been helping our clients find and buy their dream homes in Fontana for years, and we’d love to do the same for you. Call us, and let’s get started on your homeownership journey!