Obtaining a home loan

First Step

Look at your credit score. This is the first step to see if you are even qualified to purchase a home. 99% of Real Estate Agents won’t even speak with you without a pre-approval letter. So that means you need to sit with a Mortgage Lender and obtain a pre-approval letter prior to looking at any homes.

How does your credit score impact you obtaining a home loan and interest rate?

Credit Score Minimums can range from a 580 (Hard to get approved) to a 620 on average. It’s safe to say if you don’t have the minimum credit score you won’t get approved.  This is why this should be the first thing you look at and take care of.  Now let’s say you have the minimum credit score does that mean you can get approved?

The answer is no. We need to look at your Debt to Income ratio.  This is the amount of home in which you can afford after your fixed bills.  (More Info Later) Generally your DTI can’t be more than 45% of your total monthly income, including your mortgage, taxes, and insurance.   So, what does your credit score have to do with your DTI and Approval of a loan?

If you have a lower credit score the higher the interest.  I Know it doesn’t make sense!

With most interest rates around 4.5% to 6% I will show you how as little as .5% higher in interest rate can be the difference between getting Approved and Not Getting Approved!

1st Example– 4.5% interest

If you are looking to get a home loan for $400,000

$400,000 with an interest rate of 4.5% your monthly mortgage payment would be

$2,026.74.

So, over a 30-year period you would pay a total amount of $729,626.40 for the house. That’s a total of $329,626.40 in interest payments.

2nd Example5%

$400,000 home loan

$400,000 with an interest rate of 5% your monthly mortgage payment would be 2,147.29.

So, over a 30-year period you would pay $773,024.40 for the home.

That’s a total interest of 373,024.40 and a difference of $43,398 for the same home.

3rd Example – 5.5%

$400,000 home loan

$400,000 interest rate of 5.5% monthly mortgage payment would be $2,271.16. Over a 30-year period $817,617.60

Total interest of $417,617.60

So, if you obtained a home loan with an interest rate of 5.5 compared to 4.5% you are paying $87,991.20 more because of an increase of 1%

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