Taking out a loan can be a daunting, overwhelming process. Many prospective buyers have serious mortgage fears. Here are their top concerns:
Not Qualifying Due To Bad Credit
As we all know, lenders check prospective borrowers’ credit when they apply for a mortgage. Customers with a high credit score, i.e. between 760 and 850, will qualify for the best interest rates. Lower than 650, though, and they will probably require the applicant to take some time to repair their credit before applying again. Having good credit is only one part of the equation, though. Customers may not understand that there are other factors that lenders take into consideration.
Inability to Afford a 20% Down Payment
A major mortgage fear that homebuyers have is not having enough money for the down payment. Many people assume that a payment of 20 percent is mandatory in order to qualify for a mortgage; however, that isn’t true. Borrowers can, alternatively, pay private mortgage insurance (PMI), which ranges from approximately 0.3 percent to 1.15 percent of the mortgage. Paying the 20 percent down payment saves homebuyers money in the long term. It is far from the truth, though, that the down payment can disqualify them from taking out a mortgage.
Having Too Much Debt
Many borrowers worry that having too much debt means that they won’t be able to qualify for a mortgage. According to NerdWallet, the average household with credit card debt has an outstanding balance of nearly $17,000. Student debt is sky high with an average of nearly $29,000 per borrower. Being in debt does not necessarily mean that he/she won’t qualify for a home loan, though. What really matters is their debt-to-income ratio (DTI). As long as they are below 36%, most lenders will qualify them for a mortgage. If they exceed 36%, though, they can reduce the size of the mortgage to improve their DTI.
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