If you’re lucky enough to live in Arizona, where the sunshine truly never ends, you likely want to get your own slice of paradise by purchasing a new home. This beautiful state is surprisingly affordable, and there’s never been a better time than now to search for a mortgage that will help you finance your property.
But what are the different facets that help lenders decide whether you are trustworthy enough to receive a loan? Today, we’ll look at four financial factors that impact whether you receive a mortgage – and what your rate will be at the beginning of your loan.
Your credit score
You can think of your credit score as a type of narrative, showing how you have managed your money and debt throughout your adult life. It includes things like how long you have had your oldest credit card, how many loans you have, whether you make payments on time, and how much you’re currently able to borrow from all your different credit sources. These come together to show how responsible you are with your money: whether you keep a low credit balance, pay your bills on time, and don’t borrow more than you afford.
Your debt-to-income ratio (DTI)
The debt-to-income ratio is the amount of money each month that goes to paying off your debts, and most lenders want to see a DTI of less than 43%; in other words, you shouldn’t be spending all of your money every month paying off credit cards, car loans, and student loans. The lower that your DTI is, the better it will look when you’re applying for a mortgage.
Your down payment sum
In this instance, bigger is better! While you want a low DTI, you want to be able to put as much down as possible for your home. The more money that you’re able to pay upfront, the more trustworthy you will appear to lenders. The amount of money you should put down can vary by lenders, with some expecting up to 20% and others, such as FHA loans, needing as little as 3.5% down. You should also be able to pay for the closing costs on the home upfront; these can be up to 6% of the overall price of the home.
For example, if you’re purchasing a $200,000 home, the lender might require 10% down, which would be $20,000. If the closing costs are 5%, that would be another $10,000 down; overall, you would need to be able to show the lender $30,000 upfront before you can be approved for a $200,000 mortgage.
That’s a lot of money, which is why it’s essential that you learn to budget wisely, keeping a close eye on your credit score and your debts.
Your military service
This one won’t apply to everyone, but if you’ve proudly served our country, you are likely eligible for a VA loan, which is administered through the US Department of Veterans Affairs (VA). These loans have highly favorable factors, such as no down payment and far lower interest rates than would be possible with a conventional loan. If you are a military veteran, this should be your very first stop for a mortgage. If you arrange your Arizona home loan via District Lending or another mortgage broker, they will help explain to you the many benefits of applying for a VA loan, as well as how the stipulations differ from other types of mortgages.
Final thoughts
When deciding if to provide you a mortgage and what your rate should be, mortgage lenders look at a variety of factors, including your credit score, debt level, down payment, and previous history of military service. There are other components than these, but they are the four major elements that determine whether you will be approved and, if approved, how much you can borrow and what your interest rate will be.
If you decide to work with a mortgage broker like District Lending, they will guide you through the complicated mortgage process by providing personalized service and pertinent advice, sure to assist you in making these many complicated decisions. They’ll explain the other factors that go into approving you for a mortgage, as well as help you determine exactly what paperwork you need and how to choose the right lender. These components are just the start of your mortgage application journey, but a mortgage broker will lead you through the entire process step by step. Be sure to reach out to a mortgage broker to learn more about the mortgage application process, and get ready to own a gorgeous home in sun-drenched Arizona!
