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Preapproval Questions
I went to the bank a few months ago to discuss mortgage possiblities with a mortgage specialist. We are still in the process of saving for our downpayment, only 3-4 more months and I figure we should have enough! Anyways, based on our combined income, and income to debt ratio they said we'd be approved for $550 500 mortgage assuming we have perfect credit scores.
The mortgage specialist did not do a credit check at this time because my husband wasn't there, and because we weren't ready with our downpayment. I don't know how our credit scores are. I think they should be OK. We've paid off all of our debt, but didn't always pay off things on time - that was years ago though and we have both become alot more financially responsible.
Will I still have a near perfect credit rating? How much would an OK credit rating compared to a perfect credit rating affect our mortgage? A few people have told me to go through with the pre approval now even though we don't have our downpayment yet to lock in interest rates... Is that possible? This whole thing is so foreign to me.. Thoughts?
Re: Preapproval Questions
1. My understanding is that your income and job history affects how much you qualify for and your credit score will affect the interest rate. So the better your credit, the better your rate. I would recommend going through the pre-approval now to see if any red flags come up.
2. You can't lock in interest rates until later in the process, usually close to closing. However, the preapproval process can give you an idea of what your rate would be.
PLEASE do NOT use the figure that was given to you by the mortgage lender!!!!!
Keep your housing costs to 25-28% of your TAKEHOMEpay (mnortgage+PMI+insurance+taxes+utilities+HOA fees)
30-35% in a HCOL area.
Go with less if you have alot of debt (student loans, car loans or credit card debt) Your total debt load (with a mortgage) should not be more than 40-45% of takehome pay.
You can check your own credit reports for free to see if there is anything negative on them. You have to pay for your FICO scores though.
SAVE for downpayment, closing costs, moving costs, start up costs, repairs & renovations, furniture & appliances as well as decorating, tools and yard items.
Make sure you still have an emergency savings fund still in place AFTER the above have been taken care of. Do NOT use credit to take care of those items.
Don't be in a hurry or let anyone rush you through this process. Get your finances in order first - then look at your budget and see what kind of mortgage payment works best in your budget so you are not house poor (then go to bankrate.com and use the reverse mortgage calculator for the loan amount)
Great information. We definitely do not want to be house poor... and yes we live in a HCOL. We are planning to buy a new home, with a suite in it as a mortgage helper - infact it cuts the monthly mortgage payments almost in half. It's really common in our city to have a house with inlaw suite, and in the new subdivisions half of the houses are built with them.
I don't think it's safe to assume you have a "near perfect" credit rating. H and I are bill hawks and do everything the way you're supposed to and are both around 730.
The way late payments (more than 30 days) affect your score is that they factor into the percentage of on-time payments. It's a higher-weighted factor in the score determination process.
The other factors to consider:
-How long has it been since you opened a new line of credit (car, credit card, etc). Ideally it's been more than a year.
-How much available credit do you have? Hopefully you didn't close any credit lines recently.
-How old is your oldest account? The older the better.
-Paying things off in full every month doesn't actually help your credit score. This was a shocker to me. It doesn't hurt it, but you get more "points" for carrying between 1% and 10% of your available credit because they can see that you're paying things off on time.
And as pp said, you cannot lock in an interest rate until you are under contract for a property, so getting pre-approved now will not help you.