It’s no surprise that Doctors and Wellness experts tell us that regular exercise and a good diet help to enhance our physical fitness and quality of life. If only we could do the same thing for our financial fitness… oh wait… WE CAN!
Thrive Mortgage excels at “de-stressing” the mortgage process because we take the time to educate our clients on a wide array of loan program options and help them strategize on the best solution for their long-term success. Part of that process is understanding our clients’ financial fitness. Let’s talk about some of the things we examine…
Credit Reports versus Credit Scores
We have a very comprehensive article covering the topic of credit and invite you to read it to learn more. But for our purposes here, we’re going to keep things short and sweet.
Virtually every consumer in the U.S. has a Credit Report. This is basically a collection of data on accounts you have open, how long they’ve been opened, and what’s the history of those accounts (balances, timely payments, etc). The three credit bureaus who compile this data are TransUnion, Experian, and Equifax. The report is different from your Credit Score.
Credit Scores are where things get slightly more complicated. There are literally dozens of scoring models in the financial world all used for different purposes. In the mortgage industry, we use the FICO Scoring model. It has been the standard for many years, but that may change in the future as other models prove equally (if not more) effective.
These two factors, while typically components of the same document, serve multiple different purposes in the workflow of a loan file. Credit Reports show us a borrower’s monthly debt obligations, public record information that could pertain to financial stability, and any potential trouble spots that need to be addressed prior to Underwriting. Credit Scores are a rating based on the contents of the Credit Report and help determine program qualification as well as set the bar for projected interest rates.
If you’re thinking you might be a little “credit challenged”, don’t sweat it. Here at Thrive Mortgage, we have loan programs for credit scores as low as 580 and can also work with you to help you improve your credit scores to qualify for better rates and programs. Ask your Loan Officer for more information about Thrive4Home.
How much home can you afford?
Behind knowing your credit health, this is the second question everyone should seek to answer before going house shopping. And the answer is going to vary based on you and your situation. There are a lot of variables to consider, but the biggest one is your monthly budget. There’s a term we used known as “Debt-to-income (DTI) Ratio”. Simply put, it’s a measure of how much you have coming in every month versus how much is going out. The formula is simple. Add up all your monthly debt obligations and divide it by your gross monthly income (meaning income before taxes and other deductions).
Ideally, that number should be 43% or lower, but again, it really depends on each individual situation and the overall loan strategy. When you’re calculating your total debt obligations, include payments such as auto or other installment loans, credit card payments, store purchase card payments, child support payments, and student loans. Accounts you don’t need to include are things like cell phone bills, electric or water utility bills, rent, digital streaming services, and the like. It’s pretty easy math for us, so contact us today and we’ll help you make sense of all of this to figure out your ideal monthly mortgage payment.
Even if you rent, you’re already paying a mortgage…
Unless you’re living rent free, you’re already paying a mortgage. It’s either your mortgage or it’s landlord’s. Studies have shown that homeowners vastly exceed renters in their ability generate long-term wealth over time. Instead of paying for building someone else’s net worth, let’s start building yours.
Real estate has always provided a solid and stable return on investment for the vast majority of homeowners. The horror stories you may have heard, or even lived through, were largely caused by either poor planning by the borrower or poor advice from the lender. This is a very important hurdle for a lot of people overcome, but it’s one that makes the most sense once you see how proper planning and smart strategy can set you up for future financial success down the road.
James Duncan is the Director of Education & Engagement for Thrive Mortgage and has contributed to numerous published works and industry discussion panels. As a former high school teacher, mentoring and coaching is his biggest passion. Whether it is leading the Marketing Department at Thrive or working individually with clients to help them make better educated decisions, James has a tremendous passion for moving the industry forward.