If you are dreaming of a home of your own, you’re not alone. But the market is notoriously cruel to new buyers, and you might need some help. It’s a tale as old as time to be shopping around and having found the home of your dreams, you find that it is just beyond your budget. That hurts more than if it was wildly out of your budget.
Well, you’re in luck. We can’t guarantee you get that dream house, but we can help you extend your mortgage borrowing power so that you are closer to the number they’re looking for. Read our guide for all the details.
Show your income
The first thing a mortgage advisor is going to look at to determine how much you should get is how much your monthly income is, so offering up as much as possible is essential.
This doesn’t mean you have to go demanding a raise from your boss, though it can’t hurt, but more to the point, there are a lot of things you might not have considered mentioning to your lender, such as profits from investments and rental properties. Yes, this is considered income, as well as social security, child support, alimony, and income from a side business or part time job. You should mention all of these to your lender to demonstrate how much you have coming in every month, although the latter two come with the stipulation that you have to have been earning from them regularly for the past two years.
Watch your debt
The next thing a lender is going to look at is your debt. Debt gets in the way of everything financial, and is a drain on mental health, and on top of that it can outright block you from getting a mortgage if it’s high enough. Most lenders prefer a debt-to-income ratio of less than 36%, although some can go higher.
Your debt-to-income ratio is how much of your monthly income is going towards the minimum payments for your debt, so it’s in your best interest to lower your debt as much as possible.
If you have the cash, say through assets or investments, you should wipe your debt as soon as possible. It will simply get in the way of other things if it isn’t dealt with, and there will be no point in saving it all for a mortgage if you are rejected due to your debt.
If you don’t have the money to wipe it entirely, which will be a real boost to your borrowing power, you can get rid of the interest with a balance transfer card or cover it by refinancing an auto loan.
You might want to also build your credit score. It can go some way to convincing your lender that you are responsible with your money. If you don’t want to spend any more money you can look into building credit without a credit card here.
Pay more up front
As the rule goes: the more you pay up front the less you will pay down the line. If you offer a large down payment on your house, your lender might be convinced that you can afford the repayments if they are lower and therefore be secure in offering a little more.
However, the payments will be even easier if you offer more than 20%. With 20% of your home’s value paid, you will be able to forgo the Private Mortgage Insurance (or PMI) that is designed to protect your lender should you stop paying. Without the 20% down payment your PMI will get folded into your monthly repayments. And, of course, with a bigger down payment your monthly payments will be far more manageable.
Add a co-borrower
Of course, the biggest thing that will bring down your repayments is to split them with someone. Your lender will also feel more comfortable with more than one source of income covering the mortgage. A co-borrower with good credit and a steady income can convince a lender to offer a more substantial loan. Plus, on your end, the financial burden won’t entirely be on you.
But a co-borrower isn’t just a signature on a piece of paper. Your co-borrower should understand that their name is on the property, which means they are responsible for it and their share of the repayments.
But you have options. A co-borrower can be a spouse, a domestic partner, a friend or a relative.
Price match “guarantee”
Once you have an offer from your lender, don’t accept, but shop around. You are under no obligation to stick with what they offer you, especially for such a big decision, and you can compare their offer with other mortgage offers and lenders.
If you get an offer that’s cheaper, you can present it to your initial lender as a means of negotiation. It’s possible they could rethink their first offer. If they won’t match it, you’ve still got various preapproved options to choose from and you can choose the best amount for you.
