Three Things to Consider Before Applying for a Mortgage

If you are looking to purchase a home, you will likely need to apply for a mortgage. A mortgage is a loan that allows someone to purchase real estate using the property as collateral. It is paid back over a period of time. Common repayment terms are 15 and 30 years. Mortgage lender Hoboken NJ banks can offer assistance in purchasing a home.

A mortgage is a significant debt. Before applying for one, there are a few factors you will want to consider:

Credit Score

Lenders will have a minimum credit score you will need to be above to obtain a loan. Your credit score can range from 300-850 and is based on factors such as repaying current or past debts, type and lengths of credit issued to you, and the amount owed. The lender will run a credit check to determine your score when you apply.

Income and Debt

An underwriter will review your loan application and look at your debt-to-income ratio. Typically, lenders do not want applicants spending more than around 40% of their income on debt, including the new mortgage payment. You may need to pay down some debt before being eligible for a mortgage.

Down Payment

Different loan programs will require varying down payments. A common down payment can be from 0-20% of the loan amount. Some loan programs will require mortgage insurance if your down payment is less than 20%. Having some money available for a down payment will make you a stronger applicant for the lender.

Buying a home will likely be the biggest purchase you will make in your life so working with a trusted lender is important. Understanding the mortgage process before you begin house hunting will put you a step ahead during the application and get your loan closed in a timely manner.