If you’re in the home-buying game, it’s time to talk about something that’s more essential than picking out your perfect backsplash or envisioning your dream backyard—it’s your spending habits and how they can play a pivotal role in the mortgage application process.
The scoop on spending
When you’re applying for a mortgage, lenders are basically your financial detectives. They’re going to be digging into your spending habits, analyzing if you’re spending your dollars wisely or if you’re more of a ‘live-for-the-moment’ spender. It’s all about assessing risk and determining if you’re a safe bet for them.
Debt-to-income ratio
One of the key factors that lenders assess is your debt-to-income ratio (DTI). It’s the monthly debt payments you have, divided by your gross monthly income. Most lenders prefer a DTI under 43%. So, if you’re swiping that credit card like there’s no tomorrow, it’s time to rethink!
Credit card usage
Lenders love seeing that you can use credit responsibly. This means keeping your credit cards below about 30 percent of the limit. High balances? Those can be red flags. They suggest you might be relying too heavily on credit, and that’s a no-go in the mortgage world.
Big purchases & new debt
Thinking about financing a shiny new car before applying for a mortgage? Think twice. That new debt can affect the DTI we mentioned above and possibly your credit score.
Consistent employment and income
Having a stable job and a steady income is like having a golden ticket in the mortgage world. It makes lenders sigh in relief. If your income has been consistent and your employment history stable, you’re painting a picture of financial reliability.
Savings and investments
Having a robust savings account and smart investments show lenders that you are financially savvy and prepared for the unexpected. It’s like having a financial safety net, and lenders love to see it.
The late payment fiasco
Late payments are like those uninvited guests at your party—no one wants them. They can severely impact your credit score, and lenders might think you’re not serious about managing your finances efficiently.
Pro Tips:
- Get acquainted with your finances: Dive deep into your spending habits, know where every dollar goes, and create a budget. It’s all about being in control.
- Build that emergency fund: Aim to have at least three to six months of living expenses saved up. It’s your financial cushion, and it makes lenders smile.
- Monitor your credit: Regularly check your credit report for any inaccuracies or fraudulent activity. The cleaner your report, the smoother the journey.
- Stay informed: Keep abreast of any changes in mortgage approval processes and criteria. The mortgage world is ever-evolving, so stay in the loop by keeping a close connection with your loan officer.
- Consult professionals: Don’t navigate these waters alone. Consult mortgage advisors or financial consultants—they’re your compass in this journey.
In conclusion, stepping into the homeownership journey is thrilling, but your spending habits are under the spotlight. Keep them refined, responsible, and ready for scrutiny, and you’ll be stepping into your new Kansas City home before you know it! And, hey, if you need a little guidance on that, Fountain Mortgage is always here to help you out!
This weekly Sponsored Column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation.
Fountain Mortgage NMLS: 1138268
