A lower interest rate can improve your purchasing power when it comes to buying a home.
We regularly shout it out to remind home buyers not to delay if they are on the fence about purchasing property. As of the date of this article, mortgage rates are still hovering around four and a half percent. When you consider that the historic average is around 7 and a half percent (Based on data collected since 1971), this gives qualified buyers a great opportunity to either buy a larger home, or maintain a lower interest payment.
So what is a “qualified” home buyer?
“Qualified” basically means just as it sounds: A buyer is qualified under certain conditions to obtain a home mortgage loan to purchase property. So what can you do to insure you’re getting the best rate possible?
Clean up your credit.
First and foremost, a good credit report means good things for the home buyer. The higher your FICO score, the better position you’re in qualification-wise. FICO stands for Fair Isaac Corporation, who use predictive analytics based to determine one’s credit score. Here are some things you can do to help clean up your credit:
- You are entitled to one free credit report from each of the three major credit reporting agencies (Experian, TransUnion, and Equifax)
- Dispute any derogatory information that you know you’re resolved. You must have proof of your resolution, and expect it to take up to 90 days to clear off of your report.
- Make sure you’re paying all of your obligations in a timely fashion.
Reduce your debt-to-income ratio.
Aside from your FICO score, lenders use debt-to-income ratios to determine your loan qualification amount. There are two ratios: Front end, and back end. Front end basically takes your gross monthly income to determine your maximum allowable mortgage payment, while back end takes into account the amount of monthly debt you have in conjunction with your monthly gross income.
Lenders like to see a front-end ratio of around 28%, although some will go as high as 36%. Basically, they will take your monthly gross income and multiply by .28 (For a 28% ratio) to determine your maximum monthly payment.
Your back end ratio shouldn’t be above 36%, although under the new Qualified Mortgage rules, some lenders may allow a back end ratio as high as 42%. To determine your back end ratio, divide your monthly debt by your monthly income.
Shop around and negotiate.
If you’ve cleaned up your credit and your score is in good shape, don’t hesitate to shop around for the best rates and fees.
Want more tips on how to get the best loan rate? Contact Team Avalos to get started on making your dream of home ownership come true.
Team Avalos Real Estate
Keller Williams VIP Properties
25124 Springfield Court, Suite 100
Valencia, CA 91355
Office: (661) 290-3743
Carlos direct: (818) 399-4093
Rose direct: (818) 590-2077