How do we determine a home’s value?
It’s common knowledge that your individual credit score plays a vital role in your ability to purchase a home. But what do you do if your credit score is less than perfect? Well first of all, don’t panic. Poor credit scores are very common, and with some dedication and planning, it’s relatively easy to raise your score to a level at which you can qualify for a mortgage. I myself struggled with poor credit throughout my twenties, so I know first hand how possible it is to raise a low score.
First of all, you need to understand the two different metrics that lenders use to qualify you for a loan. The first metric is your credit score. This is a reflection of how reliable you are in paying lenders back the money that they have loaned you. The second metric is called your debt to income ratio. This is a measurement of how much money you spend, versus how much money you make. For example, if you make $5,000 per month and spend $2,000 per month, then you’ve got a 40 percent debt to income ratio. In order to qualify for a mortgage, you need your monthly payment to be between 30 to 50 percent debt to income. This means you can’t carry a bunch of debt, like student loans or car payments if you’re trying to get a mortgage. So, if you’ve got a high debt to income ratio, you can either pay down those loans, or build up your credit score to show your lender that you can and will pay them back.
But how do you build up your credit score? Well, there are a few easy ways to do this. The first thing you need to do is, make sure you pay down your debts and make your monthly payments on time. Second, once you’ve got a handle on things, start to keep a close eye on your credit. Whether you pull a pre-approval every six months with your favorite lender, or sign up for a monthly subscription to a credit score company, it’s a good idea to always know what’s going on with your score. Furthermore, you can always hire a credit repair company to help walk you through the process and make sure you’re staying on track and improving your credit.
So if you’re looking into buying a home, or maybe you need some help cleaning up your credit, please give us a call. We work with buyers everyday that need help with their credit and we’ll help you get in to the home you deserve.
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