Triggered by the population growth, Utah is currently experiencing a hot housing market, which means there are more buyers than homes. Mortgage lenders in Salt Lake City and anywhere else in the state are in a frenzy, and for good reason. The competition is tough, so if you are a homebuyer, you need to do these things first before you approach a lender.
1. Know your credit situation
A good mortgage deal often starts with having a good credit score. Hence, secure a copy of your credit report. The banks will require this to establish your creditworthiness based on your FICO score, which is between 300 and 850. The higher the score, the better. If you do this early on, you can review for any errors and correct those months before you apply for the mortgage. Think of this as an opportunity to add positive information.
2. Gather relevant documents
These are your financial reports and employment records, from bank statements to tax returns. The banks will gauge your capability to pay based on your assets and liabilities. On the other end, this also works to your advantage because you get to understand your own finances and what decisions you can make based on this information.
3. Reduce debt-to-income ratio
Debt-to-income ratio simply refers to the percentage of your monthly income that goes to paying debts. The rule of thumb is about 28% of your income should go to payments. Anything higher than that is considered risky. And you wouldn’t be able to live a comfortable life when 50% of your income is devoted to paying debts. So, while at it, do your best to knock your previous debts off the list and slow down on borrowing.
Following the subprime crisis of 2007, financial institutions have become stricter with their lending standards. Increase your chances of getting pre-approved by doing all the above before you approach a mortgage lender.