Cash may be king, but a high credit score is even better. Mortgage lenders don’t lend hundreds of thousands of dollars to just anyone, which is why it’s so important to maintain your credit score. That score is one of the primary ways that lenders evaluate you as a reliable borrower—that is, someone who’s likely to pay back the money in full. A score of 720 or higher generally indicates a positive financial history; a score below 660 could not only be detrimental, but lead to a higher interest rate. Even if you have a bank account that is overflowing with cash, but you have never made a payment on time in your life, expect to have a harder time in getting approved for that mortgage.
PRE-QUALIFIED VS. PRE-APPROVED
Before you start looking for a home, you will need to know how much you can afford, and the best way to do that is to get pre-qualified for your loan. Many real estate agents want you to be pre-qualified so they can show you homes in your price range.
To get pre-qualified, you just need to provide some financial information to your mortgage broker, such as your income and the amount of savings and investments you have. Your mortgage broker will use this information to estimate how much they can lend you.
You can also get pre-approved for your mortgage, which may involve providing your financial documents (W-2 statements, paycheck stubs, bank account statements, etc.) so OJ Mortgage can verify your financial status and credit. Pre-approval gives you “cash-buyer confidence” when you’re ready to make an offer, and it helps your seller take in your offer seriously because they know you can get the money you need to buy their home.
MORTGAGE STRUCTURE: IT’S A PITI With a mortgage, you’ll pay the principal, interest, taxes and insurance — commonly referred to as PITI. Principal: This is the original amount that you borrowed to pay your mortgage.Interest: This is essentially the cost of borrowing money. When you take out a mortgage, you agree to an interest rate, which will determine how much you pay a lender to keep lending. Since a higher interest rate means higher monthly mortgage payments, lower rates might mean that you can afford to borrow more.
