The Best Way to Pay Debt And Secure The Mortgage
Are you thinking about securing the mortgage? Securing the financing is not an easy job when you consider the rising land prices and the reduction in the buying capacity of people. The rates are hiking regularly and the lenders are always interested in paying attention to the real income that is generated, it also implies to the payments that a person can afford in the monthly schemes. This is the major factor against which a loan is granted to the person. This is the reason why many people prefer to pay all the debt before getting mortgage. However, doing this in the right way is very important. Here are some of the terms that you need to be familiar with, before diving into the subject:
1. Debt to income ratio (DTI):
This ratio represents the total debt to be paid per month, divided by the monthly income of a person. It has to stay below the 45 percent mark, if it exceeds this number; these are essentially the warning signs for the person.
2. Real Income:
It can be simplified into the term “qualifiable income”. Hence, this is the income that is considered for the repayment after all the liabilities have been taken into account. The real income has in alignment with the decided housing payment.
Debt is a simple term for all the liabilities/ obligations that the consumer is responsible over a period of time. It has more to do with monthly payments rather than the total amount of debt. The major factor that determines the sanction of loan is the cash flow. The lenders are always interested in the cash flow of customers.
Paying debt while purchasing a house:
While making a decision for buying a new house and before the Purchase offer is received by the person, it’s important to eliminate the debts in order to qualify and know the gravity of the buying power. The debts like credit cards, car loans, etc must be eliminated before buying a house.
The mortgage lenders are always playing with the “what if” scenarios. These scenarios can deeply affect the purchase of the perfect home for you. Suppose there is already a car loan being paid off by you in terms of monthly payments; then the buying power of the person is subsequently reduced by a good amount.
How to pay off the remaining debt and still get in resonance with the credit standards:
If the payment is being made before the contract is signed, the person should intimate the mortgage company to make a third party check so that the remaining debts can be easily eliminated. If the payment is done through the escrow process, it becomes a bit more technical but it is certainly feasible. The credit cards and other payment liabilities also follow the same procedure.
Paying the debts while refinancing:
While going for the refinancing option, the lender usually requires all the details of your credit liabilities/obligations. These obligations may be in the form of a car loan or a credit card and hence lender ensures that all these debts are fully paid off in order to ensure that there is no further liability mounting up on the borrower. It is usually done to ensure the ease with which the person can repay the loan in the nearest future. Adding to the fact, a lender can always ask for the escrow amount to be paid off via debt at the time of loan closing. This is something that is usually ignored by the borrowers but plays an important role while borrowing.
The qualification standards for refinancing are different for different lenders. It always depends on the approach used by the specific lenders and their particular standards. The accounts are usually closed while checking the qualification. However, it does not hamper the opportunity for you to reapply for the loan after the mortgage has closed.
How to pay the liabilities in the form of debt but still qualify for the lending credit standards:
The money that is being paid to cover the debt has to be necessarily sourced, like a purchase transaction. It also requires a burning proof that the liabilities have been closed. If it is possible, the borrowers must pay the credit in full amount. It is also very important for the person to check the date creditor sends report to the bureaus. After all these checks, the person is required to apply for the mortgage and it can be done only after the report has been sent by the creditor to the bureau. It will show the updated balance in the credit report which is in turn good for making the process easy and hassle free.
If there is some debt that can be easily paid off by the borrower, he should strongly consider this case of paying off the debt because a higher credit risk mortgage tends to be very pricey. These are more expensive than the ones for borrowers with a very low debt to income ratio and holding a good credit score.
While getting ready to purchase the house of going for the refinancing of the mortgage, it is very important for the person to fetch the credit reports and scores in order to see his position and check where he stands on the realistic scale of credit. A person can fetch the credit reports without costing a penny. It can be fetched once every year from one of the major credit reporting agencies. The credit score can also be monitored using an effective tool named “Credit.com’s Credit Report Card”. Hence, the process of refinancing or purchasing a house becomes hassle free and easier than it normally is.