Applying for a mortgage could be terrifying, especially for those who are not exactly sure if they could even qualify for one. Lenders would need to examine your credit history as well as your current finances, while you’d need to come up with a sizable down payment and commit to repaying your loan each month until your loan term ends.
In reality, however, these common mortgage fears are really nothing to be scared of. If you’re one of those potential borrowers facing the following fears, mortgage and loan experts in Utah give the real score.
Mortgage Fear #1: Being Unqualified Because of Low Credit
It’s common practice or lenders to examine your credit score and history when applying for a home loan. Ideally, your credit score should be at least 760 so you could qualify for better interest rates and loan terms.
However, most lenders would still approve borrowers who have scores lower than 750, but not lower than say, 650. There are likewise certain home loans that have less stringent credit requirements.
In addition, credit is not the only factor that could impact your chances of getting approved for a mortgage. Put simply, for most potential borrowers, their credit score will just help lenders determine what interest rate they can offer the borrowers, and not if they can qualify for a mortgage.
Mortgage Fear #2: Not Having Money for a Down Payment
Coming up with a significant amount for the down payment is usually a top concern among prospective borrowers. However, this is primarily due to the fact that many of them think that they should be able to put a 20% down payment in order to secure a home loan, which is not really the case.
Being able to put down a down payment this big however comes with a significant benefit, specifically, not having to pay PMI or private mortgage insurance. But while there’s some kind of stigma about paying PMI, this could actually help you buy a house.
Likewise, paying PMI now so that you could secure a mortgage now rather than waiting many years from now could get you in a position to leverage low interest rates.
Mortgage Fear #3: Having Debt
Having existing debt does not necessarily mean that you will not qualify for a loan. Lenders care more about your debt-to-income or DTI ratio, which compares your existing debt to your current income.
For conventional loans, the majority of lenders require that borrowers have a DTI ratio not higher than 36%, but some lenders are known to accept a DTI ratio of 43% depending on specific circumstances.
In addition, even if you have a higher DTI, you could take some steps to lower it such as applying for a smaller home loan — a smaller or less-than-perfect house is still better than nothing at all.
The best way to overcome these mortgage fears is to reach out to different lenders. Discuss your circumstances with them to see which mortgage options you could qualify for.