As you seek to qualify for a mortgage, lenders will often refer
to your "debt ratio." Specifically, they are looking at "long term
debt." Long term debt is any debt that will take months to pay
off. Those debts may include car loans, installment loans, student
loans and large credit card balances. Lenders will decide how
much of a mortgage you can afford based on what percentage
of your income is required for debt payment. Many lenders will
require that no more than 36% of your income.
If you wish to qualify for the maximum amount of mortgage based
upon your income, it is wise to begin reducing your debts before you
apply for a mortgage. Here are some general "helpful hints" for
preparing for the qualification process.
Begin making maximum payments on your loans and credit card
balances.
Close any open lines of credit that you do not use. Lenders
are also interested in the amount of credit available to
you as well as the amount you have actually used.
Check your credit report and make sure that all the information
is accurate. Make sure that accounts that have been closed or
paid off are listed as such on the report.
If you have any delinquent accounts or collection items, make
payment arrangements and make your payments on time, as agreed.
Your "Comfort Zone"
Carefully consider the size of the monthly mortgage payment that
you feel you can handle. Sometimes you may qualify for a larger
mortgage and a larger monthly payment than you think. Decide what
fits into your budget.
