MSUFCU’s 4 Key Mortgage Rules, Including the House-to-Income Ratio
Buying a home is exhilarating! You can dream up what kind of home you’d like, what kind of community you’d enjoy, and what amenities will make your life easier.
The possibilities are endless.
Okay, they’re endless until you look at the cost and your financial statements. Sometimes, those two numbers don’t have a lot in common. Sometimes, we can’t buy that home we just saw on House Hunters.
When my husband and I bought our first home, we had to prioritize what was most important. Our financial institution told us we could afford a $214,000 mortgage. But when I looked at our income, I knew that it was safer to have a $100,000 mortgage.
Thankfully, I trusted my calculator better than the mortgage lender’s, but it would have been really nice to have tips like these handy when we were making this decision.
The finance experts at MSU Federal Credit Union want their members to buy the right house. They want their members to be in love with the house they find, and have peace of mind knowing they can afford it.
These are the mortgage rules they follow when helping their members land that mortgage. Did you know these rules?
3 Things Home Shoppers Should do First
Deidre Davis, MSU Federal Credit Union’s Chief Marketing Officer, says you should take a hard look at your finances before even surfing over to Realtor.com.
“The excitement and emotions of house hunting can make you forget about the math,” says Deidre.
I did not do the math and had all the stars in my eyes for a nice Heritage Hill beauty in Grand Rapids. A sweet little fixer upper. It was a big letdown when my paycheck said, “You can buy a third of that house.”
Here’s how to get your ducks in a row for house shopping:
1) Determine How Much House You Can Afford
Buying a house is one of the most important financial decisions you will make,” says Deidre. “It’s important to have your budget in order to know exactly how much house you can afford – before you start looking.”
Take into account a few primary items, such as your household income, monthly debts (car loan, student loan payments) and other payments (gym memberships, subscriptions) and the amount of available savings for a down payment.
“A good rule of thumb is to keep your mortgage payment, including taxes and insurance, below 28% of your take-home pay,” advises Deidre.
Quick, do the math: what’s your maximum monthly payment?
If you’re looking to buy a home, I think this is the number one thing to keep in mind.
2) Make Sure Your Credit Score is Solid
“Having a higher credit score will typically mean that you will receive a lower interest rate from potential lenders, saving you money,” explains Deidre.
Good credit scores are usually 700 or higher; 800 or higher is excellent.
Ways to Improve your Credit Score:
- Pay all bills on time
- Reduce debt
- Do not open more credit cards, other loans or lines of credit unless absolutely necessary.
- Do not close existing credit cards. (This seems counterintuitive, but it’s true.)
- Review your credit report from one of the three national credit bureaus — Equifax, Experian and TransUnion — about four months apart so you can regularly review your report, and quickly identify any discrepancies or identity theft and report it. (Consumers can access free credit reports once a year from each of the three credit bureaus by going to AnnualCreditReport.com.)
3) Save Time by Applying for Your Mortgage via the MSUFCU Mobile App
In our fast paced world, it’s really nice to be able to apply for a mortgage anytime, night or day. It is fast, easy, secure, and available when you are. Apply for your new mortgage with just a few taps of your finger.
On the MSUFCU Mobile app, log in, tap the icon in the upper left corner, then tap Apply for a Mortgage.
You can talk to a real person anytime, but updates are sent via email, making it easy to receive information any time of day.
Once you apply for a home loan via the MSUFCU Mobile app, a mortgage loan officer will review the application and reach out to you within one to three business days. While not necessary at the time of application, certain income verification documents, such as pay stubs, will be needed and requested by the loan officer.
Depending on an applicant’s qualifications, they may be pre-approved at that time or after the loan officer reviews the application.
The approval timeline will vary depending on the applicant’s qualifications and documentation needed, but many applicants are pre-approved within a few days of application. Once the loan is approved, the applicant will receive pre-approval information via email.
Why Having a Pre-Approval Matters
A pre-approval letter for a mortgage demonstrates to sellers that you are a serious buyer. It may also help if you are in competition with other buyers, as you are already approved by a lender to be loaned a certain amount under specific terms.
The 1 Thing You Should NOT do When Getting a Mortgage
Don’t lose sight of what’s important.
We can easily get caught up in the emotions of wanting this one house. I’ve been there. In the end, we all have to make compromises to get a home in a location we want at a price we can afford.
“Remember that a house, even if it seems to be The One, is rarely a forever home,” advises Deidre. “You should be prepared to not only make a wish list of “must haves” in a home, but also a list of those items you are willing to compromise on, if needed.”
I compromised. My house didn’t have vintage builtins or Frank Lloyd Wright architecture. It didn’t have much of a yard. I thought I’d eventually move to “the one” but 15 years later, this house IS the one.
We’ve put in our own dream bathroom. We refinished vintage woodwork, bought vintage finishings at antiques malls, and are enjoying a yard that can be mowed in about 20 minutes.
The one thing I didn’t compromise on was what I could afford. So when I lost my job during a recession, we didn’t lose our house like other friends and neighbors did.
I’m really glad I used the rules MSUFCU outlines above. I hope you do, too.