Lenders also want your mortgage expenses and other regular debt payments to be less than 36% of your gross income. They’ll look at how much you owe on your credit cards and any car, college, or other loans you’re repaying. Again, they want to be sure you’re not overburdening yourself and that you’ll stay on top of all your obligations.
Example:
Total
monthly pretax income
$5,000
$8,000
$10,000
Qualifying
percentage
X .36
X .36
X .36
Monthly
amount of acceptable debt
$1,800
$2,880
$3,600
Credit history
Your lender will want to see a credit
report that shows a strong history of repaying borrowed
money. If you’ve been prompt in paying your credit
card bills, car payments, and other loans, you’re more
likely to qualify for a mortgage.
Most experts suggest you get a copy
of your credit report two months before
applying for a mortgage.
That will give you a heads up about
credit problems a potential lender might question. You may
be able to provide an explanation as part of your application.
Or you may find errors that can be corrected before they
provoke questions.
If you are turned down for a mortgage,
you have the right to a free copy of your credit report
to see how your financial history appears. You’re also entitled to a free report from each of the three major credit bureaus — Experion, Equifax, or Transunion — once a year. To request a report, you can visit www.annualcreditreport.com or call 877-322-8228.
More about Money
If you want to learn more about managing your money wisely for the future, visit www.tomorrowsmoney.org. This financial education Web site for new savers and investors was created by the Bond Market Foundation.
