Considerations Before Applying for a Home Mortgage Loan

This is one of the factors that could affect your chances of getting a mortgage.

Owning a home is part of the American Dream, and if it is located in Miami, Florida, it sounds even more attractive to any buyer. However, every dream has its share of reality and in the real estate market is represented by home mortgage loans for which in most cases you must apply before buying your property. Have you already considered all the financial elements to apply for one?

Applying for a home mortgage loan

Before you make an appointment with your mortgage lender and purchase a home, you need to consider certain factors that may facilitate or hinder the acquisition of a mortgage loan and affect your financial situation. What are these factors? Ace Florida Realty describes them below.

Consider your credit history

Today, a positive credit history is essential and very important, since it is a report of a person's entire credit history. This record shows the ability and responsibility of a person to account for payment of his debts; it contains information on the number and types of credit accounts, account antiquity, timely payments, amounts owed, credit inquiries and even bankruptcies.

This information is used by mortgage lenders or credit card companies to decide whether to extend a loan or not. It is also used to calculate the credit score discussed below and to define the terms of a loan; for example, lower or higher interest rates.

The idea is to keep a positive credit record, avoiding delinquent accounts, those with payments that are at least 30 days overdue; foreclosures; bankruptcies and irresponsible use of credit.

Consider your credit score

A credit score is a three-digit number that indicates how likely you are to repay your debts or credits. It is calculated by analyzing information provided by your credit history and considering the Fair Isaac Corporation (FICO) score range. The calculation of the score takes into account the payment history, total debt, length of credit history, new credit and types of credit.

And what number is favorable for getting a home mortgage loan? Below you will see the ranges provided by FICO and will obtain the answer:

Exceptional: 800 points and above.

Very good: 740 to 800 points.

Good: 670 to 740 points.

Fair: 580 to 670 points.

Poor: under 580 points.

The higher your score, the better the chance of getting a loan with better repayment terms. Does this mean that you can not get a loan with a low credit score? As indicated by Intercorp Mortgage Solution, a mortgage company located in Miami, with low scores you can get a loan; however, the payment terms including interest rates will be less favorable.

Consider your debt capacity

Another aspect to consider before you apply for a mortgage loan and acquire a house is your debt capacity. Generally speaking, debt capacity is the maximum amount of debt a person can assume and payback in a specific period without jeopardizing its financial integrity.

It is calculated by identifying a person’s monthly fixed income and fixed expenses, which may include rent, credit payments, food, transportation, education and even vacation expenses. When you calculate the total of fixed income and payments per month, the two amounts are subtracted, resulting in the total net income.

Finally, the net income is multiplied by 35% or 40% to calculate the amount of money you can use from that net income to pay off your future debt or, in other words, your debt capacity. This method tells any lender what your ability to repay monthly loan payments is.

All of the above elements are taken into account by any financial institution or mortgage lender to analyze if you are a right candidate for a loan. If you do not have a good credit history and your credit score is low, you should try to improve them to have a better chance of getting a home loan. Likewise, a high and stable income and low expenses ensure you a better opportunity to pay off your mortgage.

If you want to get the house of your dreams and enjoy a long life in that property, consider all the factors that can influence your acquisition. If you have any questions about the purchase process, please feel free to contact the Ace Florida Realty brokerage firm. Their team of qualified real estate agents will know how to guide you on the best way and get the property that meets your expectations and respects your budget.

Before you apply for a mortgage, take into account these considerations that Ace Florida Realty brings to you.

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