Purchasing a home can be an overwhelming task especially for first time home buyers as there are certain steps and guidelines you need to follow in order to make the home buying transaction a smooth one. In Minnesota, we are currently experiencing a golden opportunity to purchase a home as home values are reaching 2001 levels and mortgage rates in Minnesota continue to break historic lows. Here are some tips that can help make sure that you are prepared when it is your turn to submit an offer on a new home.
First and foremost you need to make sure that your credit profile is in tip-top condition as credit is the most important factor that lending institutions base their approvals on. Currently the FHA requires a minimum credit score of 620 to be approved for a new home mortgage, but that doesn’t mean that if you have a 620 you should be happy with your credit score. When you apply for a pre-approval for a new home mortgage and your loan consultant pulls your credit, you should ask to go over your credit line by line to make sure every item on your credit report is correct and make necessary changes to your credit before moving forward with putting in an offer on a house.
There are certain tips and tricks you can use to boost your credit score in a short period of time including paying down the balances owed on revolving accounts. Thirty percent of your credit score is calculated based on the amount you owe to creditors and being maxed out on a card is going to drop you score. Less than 50% of credit available per revolving account is the magic number you should shoot for to give your credit score a boost to improve your mortgage financing rate and term.
Employment & Income
The second most important factor lending institutions base their approvals on is your income and employment status. All lending institutions will want to see at least a 2 year history of steady employment with your current employer ideally being your employer over the past 2 years. A gap of employment of the past 2 years does not necessarily mean that you will not qualify for a new home mortgage if you are able to explain your situation to the lender and it makes sense to them. Additionally, if you have switched employers over the past 2 years, do not have a gap of employment and are working in the same field the lender will want to see that you have maintained your current employment for the past 6 months.
Your income will determine the size of a home that you can afford as FHA debt to income housing ratio is 29 percent when calculation your new mortgage including principle, interest, taxes, insurance and Private Mortgage Insurance if required. Additionally there is a back end debt to income ratio which calculates your housing cost along with other items reporting your credit report which should not add up to more than 41 percent.
Learn more about what it takes to qualify for a Minnesota FHA mortgage for homebuyers.
By: Jeremy Redlinger | NMLS #627335 | PRC Funding | 763-957-0858