The good news: You’re ready to buy a home!
The question: Can you actually get a home loan?
Getting a home loan for your property purchase in Lake Forest Park, Washington is an important part of the process for most buyers, because real estate is relatively expensive here in this quiet, hilly, woodsy neighborhood.
Many home buyers, especially first-time buyers who want to live in Lake Forest Park, WA; spend quite a bit of time wondering and worrying about qualifying for a home loan.
Frankly, it was a real struggle for my husband and me to buy an LFP home when we first got married. My parents lived in Lake Forest Park, WA, and we wanted to, as well. When we moved back from North Carolina after getting married, we couldn’t afford property in Lake Forest Park. We started off buying in a Lynnwood, WA townhouse before moving to Lake Forest Park 10 years later to buy our dream home near my parents. If it’s hard to afford that LFP now and you don’t qualify for the home loan you need to make it happen, don’t give up on your dream… just take action, make progress, and be patient!
How to prepare: Even if that Lake Forest Park, WA house seems like a stretch financially, there are several things you can do to boost your chances of qualifying for a low-risk, affordable mortgage. So check out these 3 quick tips to ensure you will qualify for a home loan in Lake Forest Park, WA like you’ve been hoping to!
1. Improve Your Credit Score
The first step to take toward ensuring you qualify for a home loan in Lake Forest Park, WA (or anywhere else) involves your credit. You need to check your credit score and then work on improving, if needed.
Most conventional lenders require a minimum credit score of 620 to 640.
Some government-backed loans, however, will allow a score as low as 500. But with a low credit score, your interest rate may be too high. The stronger your credit score, the more affordable your home loan will be because you’ll get a better rate and better terms on your mortgage.
How Can You Improve Your Credit Score?
If, after checking your credit score, you find that it needs to be brought up, here’s what you can do:
- Pay On Time: Make all debt payments on time and in full because credit is a heavily weighted factor in your credit score, 35% percent of the score.
- Reduce Debt: Pay off car loans, student loans, medical bills, and credit cards to reduce your overall debt. Your debt in relation to the total amount of credit extended to you amounts to 30% of your score.
- Avoid New Credit: Avoid making any large purchases on credit or opening new lines of credit prior to applying for a home loan.
2. Improve Your Debt-To-Income Ratio
Another effective strategy to help ensure you qualify for a home loan involves your “debt-to-income” (DTI) ratio. Your mortgage lender will want to know that you have enough money coming in after paying debts so that you can make the mortgage payments, and your DTI ratio will tell them that.
How To Calculate Your Debt-To-Income Ratio:
To calculate your DTI, add up all your monthly fixed payments such as:
- Car payments
- Credit card payments
- Alimony or child support
- Student loan payments
Then divide your total monthly expenses by your total pre-tax household income and then multiply that figure by 100.
The lower your DTI ratio, the better off you’ll be when it comes to qualifying for a home loan. Typically, mortgage lenders require a DTI ratio of 50% or less for qualification. If your DTI ratio is above that, then you can improve by reducing monthly payments and/or increasing your income.
Earn More Money
Some people may try to improve their Debt-to-Income ratio by getting a new job or starting a business in order to make more money. Whether or not this higher income is usable may depend on a variety of factors.
For the new job, for the best chance of the bank looking favorably on including the income, it should be in the same field that you were in previously. This can be liberally interpreted.
Case Study: I had one client who worked as a teller at a bank, and then worked as a checker at a pharmacy. Both jobs were considered “customer service” and the bank was able to count the income so he could qualify for a home loan, even though the jobs were in different industries.
Will The Bank Include Your Business Income?
For a new business, you will typically need at least 2 years of income and tax returns showing consistent earnings and subtracting realistic expenses.
Case Study: I had one client who said they made a lot of money at their Uber business, but they had only been working there for about 6 months, so the bank was not able to count the income toward their home loan. However, the lender did say there were other bank statement loan programs they could use instead…
These are guidelines, but be sure you speak with your lender about your specific situation before you give up or make a decision. Many lenders have a variety of loan programs and if you don’t qualify for the traditional, conventional loan, there may be something else that will work for you.
If you are in the midst of shopping for a house and want to change jobs, make sure you check with your lender first, so your home loan doesn’t get derailed.
Talking To A Lender
These home loan tricks I’m telling you are the same types of things your mortgage lender will discuss with you when you apply for a loan. It’s good to know going-in what they’ll want to talk about so you can be prepared and gather some of the information they may need.
3. Determine What You Can Afford
Knowing what you can actually afford in a home will also help you qualify for a home loan. You will be able to shop for homes that you can comfortably buy, and not find yourself getting into a “house poor” situation, where a too-large portion of your monthly budget is going toward your mortgage payment.
A good way to determine the affordability of your potential home is by using the 28/36 Rule. This rule is related to your DTI ratio. A 50% DTI ratio, for example, means that you spend half your monthly income on debt payments.
According to the 28/36 rule, you want your “front-end” DTI – that is, only mortgage-related expenses – to be at or below 28%. And your “back-end” ratio – that is, your mortgage payments and all other debt obligations – should be, ideally, around 36%. Figuring exactly how much house you will allow you to stay near these percentages will allow you to know how much you can actually afford – and how much you can qualify to borrow.
If you exceed these percentages and your DTI is too high, then (as we indicated above), you’ll need to work on reducing or eliminating some of your existing debt. And keep in mind too that a monthly mortgage payment is only part of your home-related expenses. You will also have to pay for homeowners insurance, property taxes, HOA fees, and so on.
The worst thing to have happen is to buy a house and find out you can’t afford it. I find that often the amount a lender will approve you for is more than you might prefer to pay. Being conservative upfront is a good way to make sure you are happy with the end-result of your purchase.
And Get Tips From a Lake Forest Park, WA Real Estate Agent
Qualifying for a home loan, though, is only one piece of the puzzle. You will also have to find a home with a price or negotiate a price that falls within your price range and borrowing ability.
That’s why working with an experienced Lake Forest Park, WA agent is so important. And we have the agents who can provide the assistance you’ll need. So when you qualify for a home loan in Lake Forest Park, WA and are ready to buy, contact us at (206) 578-3438.