So it’s time to upgrade your status from being a renter to a homeowner. However, buying a home takes more than just having the money, looking for the perfect place, and sending in your mortgage application. There are many things you have to prepare for, and seeing that the home financing service is the biggest player in this process, you want to do everything to qualify.
The good news is, certain strategies will help increase your chances of securing one of the most affordable mortgages. Utah is one of these states that includes the strategy of paying your existing debts.
The impact of your outstanding balances on your mortgage application
This strategy doesn’t automatically mean that you have to clear your debts to quality for a home loan. However, the fewer debts you have, the better your standing is when it comes to your mortgage. How much you owe at the moment plays a major role in your mortgage qualifications and the amount of money you can borrow from a lender.
All lending institutions first take a look at their applicants’ debt-to-income ratio before they approve (or reject) the mortgage. As such, having a high debt ratio puts you at risk of disqualification, since this means you still owe other creditors – such as credit card companies – a lot. They automatically assume that you may have a hard time making mortgage repayments on top of your other loans.
The 36% limit
Although not all lending institutions follow this, most do. This 36% should be the limit of a borrower’s total debts versus their gross monthly income. When your current balance total is close to 36% of your gross monthly income, lenders may already reject your application.
You should first take a close look at your debts before applying for a mortgage. Pay off what you can while still saving up for a down payment, as this will free up lines of credit that will make you more favorable in the eyes of lenders.