As you get your finances in order to prepare for buying a home, keep these all important mortgage numbers in mind:
660 | 750
Although the minimum FICO credit score needed to qualify for a FHA mortgage is 580, aiming for a 660 score is a safer bet.
For a conventional mortgage aim for a 740 credit score or higher.
An excellent credit score– 740 and and up is money in your pocket.
On a $250,000 30-year fixed rate mortgage, someone with a score of 620 would pay about $240 more per month than someone with a 760 score.
Having more unused credit will increase your credit score.
Ideally, you should not use more than 10% of what’s available.
28% | 36%
The number one rule of personal finance is to earn more money than you spend.
Keep housing costs to no more than 28% of your monthly income before taxes.
Housing costs will include your monthly mortgage payment (principal and interest), homeowner’s insurance, property taxes and homeowner’s association fees, if any.
Your monthly housing costs plus any other debts you have (student loans, car payment, credit cards, etc.) should be below 36% of your monthly income before taxes.
This is your income to debt ratio or DTI.
Your DTI is very important. It is one way lenders use to measure your ability to manage the monthly payments of the money you have borrowed.
The quickest way to improve your DTI is to shrink your expenses.
Consider the following methods for cutting expenses:
- Reconsider your commute. Try public transportation, carpooling, bicycling, or walking if at all possible. This options will save you money on monthly gas expenses and it’s better for the environment.
- Cancel subscriptions you’re not using. You might have regular deductions on your account for services like Spotify, Netflix, and more that you didn’t even know were there. What do you actually use?
- Cook more. Better yet, cook in bulk. Bulk meals with a lot of leftovers will last you a while with minimal cost. This is especially helpful for families. Plus, the leftovers make great work lunches.
- Buy in bulk and off brand. Get a membership to stores like Cosco or Sam’s Club, and buy non-perishable items in bulk. You can also skip some branded items too to save a little extra.
- Reduce your cable bill. What is your current package getting you? Do you really need HBO or Showtime? It’s possible you don’t need to be paying nearly as much for cable.
- Review your cell phone plan yearly to verify that you are getting the best rate.
Aim for a 10% percent down payment, and if possible 20%.
A higher downpayment helps you helps you qualify for a mortgage and reduces your monthly payments.
The Federal Housing Administration (FHA) offers mortgages requiring only a 3.5% down payment.
Programs via Freddie Mac and Fannie Mae only require a 3% down payment but, you will have to pay more in other fees— such as, mortgage insurance.
Contact your payroll department to have a small portion of your salary deposited directly into your savings account.
If thats not an option, set up automatic transfers from your checking account each pay period. You’ll never miss it!
If you have any questions or need any assistance with the mortgage numbers listed, please contact me. I will be happy to help!