Get Approved for a Mortgage Loan: Tips to Keep in Mind

There are a lot of reasons why people fail to qualify for the mortgage program that they have applied for. What most people do not understand is that there are certain things that one can do to minimize the chances of this happening. Here are some of the most effective tips that you have to keep in mind in order to ensure that you will get approved for a mortgage loan. Go through the following points and see to it that you use these bits of knowledge when you put your loan application forward.

One of the most important things that you have to keep in mind in order to boost your chances to get approved for a mortgage loan is to clean up whatever credit debt you may have. As you would know, the amount of debt that you have has a great role in your chances of getting your mortgage loan application approved. The bigger debt that you have, the smaller chance you get of getting the amount that you need from your mortgage loan. So is you have the time, you better see to it that you pay off these debts first before you put your mortgage loan application forward.

Another thing that you can do to boost the possibility of you getting a yes is to improve your debt to income ratio. Obviously, the amount of money that you make should be loads bigger than the amount of money that you owe to anybody. There are two main things that you can do to improve this ratio: to increase your income or to minimize your debt. Choose which option will be more attainable for you and make sure that you implement an appropriate plan before you apply for a mortgage loan.

If you cannot pay off all your dues in one go, then the very least that you can do is to ensure that you meet your payment deadlines. It will be much easier for you to get approved for a mortgage loan if you have consistently met your deadlines and if you show good payment history. However, this tip will not be too easy to carry out for you would have to show a certain level of consistency. Worry not, for as long as you show even the slightest inkling of sticking to the terms of your other debts, you will surely be able to increase the possibility that you will get your mortgage application approved.

Get Approvedfor a Credit Card – Lowest Interest Rates

In order to get approved for a credit card, people these days have to prove that they are credit worthy more than before.  It used to be that having a FICO score of 720 is already good enough for credit card applicants to get not only one, but two, or even three credit cards.  However, with the global financial slowdown that has been affecting the world for the past years, companies issuing credit cards have already been raising their standards in with their applicants’ credit scores.  Nowadays, a lot of people with plastic default on their payments, so credit card companies are more careful on who they will issue their cards to.  These days, an excellent credit card rating is 750.

The FICO score is short for Fair Isaac Corp., which was one of the pioneering companies in credit scoring in the 1950s.  The factors for that contribute to the FICO score is combined in a rather complicated manner, and they decide play an important factor whether an application is accepted or not.  Each application is said to consider each application on a case to case basis, which is supposedly why there are so many credit analysts and evaluators being employed by credit card issuing companies. The FICO scores give a positive or negative effect in relation to other factors like the applicant’s ability to pay,   source of income or employment status, and other properties or investments.  

The exact metrics of how to get approved for a credit card are a bit of a mystery for those outside of the credit card issuing world.  However, there is a common thread among different credit card issuers as to what they want to see in their applicants. New cards are usually issued without difficulty to applicants who have showed earnest efforts in paying their existing accounts on time.  Then, there is also the debt to income ratio, which pertains to the percentage of a person’s credit lines in proportion to the ones he or she is actually using.   That means that if a credit card applicant has used more than a third of his or her total available credit line, it is a red flag for those evaluating his or her application.

Moreover, since the CARD Act of 2009, the number of students that do not have a credit history who have been offered a credit card has declined.  That is because the CARD Act requires people under 21 to have a co-signer when applying for a credit card, unless they show sufficient evidence that they have enough assets or income to responsibly handle their own line.  Thus, students and minors who want to get approved for a credit card will definitely have a near-impossible chance of getting their own swiper, which means they will have to content themselves with debit cards for the time being.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Debt to Income Ratio Measures That Can Merit Loan Approval

Before even considering taking out a loan, you may want to know beforehand if there is a possibility that your application will be approved. There are many factors that a lender undertakes before a loan application can merit approval. One way to determine it is through the debt to income ratio. This ratio represents the percentage of debt allocated within your income. The debt includes the existing and the amount that is still being applied. As such, the higher the amount of existing debt, the lower the chances of the loan application being approved especially if the loan amount will exceed the acceptable debt ratio considered by lenders.

Definitely, no lender will ever let their money borrowed if they do not see any capability on the loan applicant to pay back what was borrowed plus any interests. They always want to make sure that the money they have lent will be returned to them within the agreed monthly payments. This is why lenders have several measures to make sure that they are giving the loan to the right borrower. Typically, to merit an approval from a lender, the debt to income ratio of a loan applicant must not go beyond the 36% to 42% bracket. This means that if a loan applicant has an existing debt that already takes 25% of his net income, the additional loan amount that he can be allowed to borrow will only be within 11% to 17%. The amount of a loan one can get is also called their borrowing power.

This is what the lender believes the only allowable and acceptable range to which a loan applicant can still manage to pay his obligations. Beyond this percentage, there will already be uncertainties whether the borrower can still pay what has been borrowed.

Most lenders are really very cautious when giving loan approvals to protect their business from loss due to payment defaults. Their business grows through the interest earned by the money they have lent. Further, because they are dealing with money, they want to make sure that it should only be entrusted to the right one. This is the reason why they have to give a ceiling to the debt to income ratio. In essence, this debt ratio is not just helpful to lenders in determining the right clients for them. This can also be beneficial to borrowers as this ratio will help them manage their finances better. Through this ratio, they can know whether they are already borrowing beyond their means.

Before You Rent Look at Your Debt to Income Ratio

If you’re looking at renting an apartment because you “know” you can’t afford a home or a condo then think again! Right now buying a home is very difficult because of the process you need to go through proving that you have the income you say you have. Other than that it’s not too difficult.

The reason I want you to at least LOOK into buying a home first is because of the amount of foreclosures out there right now. They’re listed on the standard MLS just like every other home available for sale so they’re just as easy to find as any other home. The first thing you need to do is check you debt to income ratio.

Everyone avoids looking at their borrowing power and debt to income ratio because they sound like a 10 page math problem. Here’s the plain and simple version for you: If you get approved to rent an apartment for $900 per month then you can afford at least $900 for mortgage, taxes and condo fee when buying a home.

You can easily find a condo with $150 taxes and $100 condo fee per month leaving you with $650 to spend on a monthly mortgage payment. Use the mortgage calculator at the bottom of this page to see that you can afford a condo for $120,000 ($644 per month). However you’ll need to come up with anywhere between 3-5% for a down payment in order to buy the home plus closing costs.

I’ll assume you don’t have anything saved for the down payment and closing costs. You’ll have to get a personal loan for that amount and use it as the down payment.

Monthly Spending: $900

Monthly Taxes – $150
Condo Fee – $100
$100,000 – $500
Personal Loan $7,000 – $150

Total – $900

So you’ll first get the personal loan over 5 years at about 13% interest. Don’t worry about the high interest rate because the loan is only over 5 years which will be a total of $2,550 in interest for the entire term. That’s worth buying a home.

The second thing you want to do is find a lender with the lowest interest rate possible. Call at least 5 lenders and let each one know the lowest rate you already found and they might negociate it with you. The best current interest rate I know of in July of 2011 is 4.50%. So if you get a $100,000 home and have a 5% down payment of $5,000 you’ll have a loan over 30 years at 4.50% of $95,000. That equals a monthly mortgage payment of $480.

While you’re looking for a home you just need to be sure that the condo fee and monthly taxes add up to less than $250 together. If you find a home with taxes of $1,200 per year and a condo fee of $150 per month it’s still less than $250. The numbers don’t have to each be exactly as I stated in the above equation they just need to add up to less than $900 all together.

If you can afford $900 for monthly rent based on your income and credit score why wouldn’t the mortgage lender allow you to buy a home that only costs $900 per month? It’s the same equation for an apartment renter and a mortgage lender to figure out what you can afford per month and whether they’ll approve you or not.

The main reason I’m pushing people to look at buying a home rather than renting is because home values have dropped like a rock and rental prices have stayed the same! About 2 years ago it would cost about $1,500 per month to buy a home and pay the taxes and condo fees and you could rent it out for about $1,200 per month. The hope would be to make some extra money for a few years and sell the home for a big profit.

Now, in 2011, you can buy a home for $600-800 per month and rent it out the next day for $1,000 per month. Then you can make money each month and sell it in a few years for HUGE profits. So when you hear people saying “buying is cheaper than renting” that’s what they’re talking about. Investors are buying homes and renting them out right away to make additional monthly income.

If you’d rather rent so that you can move in a year or two then you should still buy a condo and rent it out when you plan on leaving. Then you can buy another condo once you have it rented out. Once you have it rented for about 6 months you can use that rent as you personal income which means this:

Your Monthly Spending $900
Plus Monthly Rent $1,000 (75% counts as income) $750

Mortgage Payment $480
Monthly Taxes and condo fee $250

Total Spending – $920

Back to square one and buying your second condo! Mortgage lenders assume that your condo will only be rented for about 75% of the time so they only allow you to use that percent as income. If a tenant leaves it will take a couple of months to get a new tenant in there and paying rent.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Showing Up in Google Search Results

I’ve been building and working on The Free Mortgage Calculator since 2006 so I’ve learned quite a bit along the way about building websites, ranking in the search engine and getting advertising on my site in order to get paid for my work.

I have a 2nd website www.creatingvisits.com where I build small websites for people for very little money compared to web designers. I’ve built quite a few and people like them because I guarantee visitors per month. If you look online for a web design company they will build a nice looking website but they won’t optimize your website at all in order to show up in the search engines. Why have a website if you’re not going to show up in Google?

So after they build your website you have to pay thousands of dollars per year to a Search Engine Optimization (SEO) Company in order to show up. These SEO companies will guarantee that you show up for 10-15 exact keywords or phrases that you pick as well. They’re great, but very expensive.

Since I know how to do both I offer both in one package because you NEED both obviously. So I charge about $750 for a 5-10 page website and $70 per month to guarantee 200 visits per month to your website. We’ll work together to figure out the best keywords for your business and work on them month to month in order to get the guaranteed visitors.

How To Show Up In Google

1) Title of Domain and Pages

If you type “creating visits” into Google my website will show up first because that’s the name of my website. Very similar to if you typed in the name of a book into a library computer you’d get that book first on the list of results. As you continue to add pages to your website and title them you’ll start showing up for variations of those keywords as well.

If I have 1 page titled “mortgage calculator” and another website has 100 pages titled with variations of the phrase “mortgage calculator” who would show up first?

2) Add Content

Adding pages and pages of GOOD QUALITY content that sets your website apart from others with not only get you to the top of Google it will create repeat visitors. Don’t just say “you should know your debt to income ratio“. Let people know how to figure it out so they come back later if they need to know their borrowing power or how to use a mortgage calculator.

3) Discuss Your Items

If you’re selling a product discuss each product on it’s own page in detail. This creates more variations of the keywords and phrases you want to show up for in Google.

Think about the worth of each word in a book. The Title is worth the most, the chapter second and the content third. Websites also have links that send you from one of your pages to another rather than a page number in a book so those are also worth points. Whenever I mention “mortgage calculator” I make it a link to my homepage with the calculator at the top of the page so people can use it.

I’m very honest and up front as you’ve seen with most of my blog posts so far. If you’d like to start a website or blog then let me know and I can do one of 2 things: Build the website, add it to search engines and start link building or build you a blog and set it up for you to continue to add posts yourself to save you money.

If you like my blog and information please add a link to your Facebook page so that I can increase visitors! Maybe soon you can tell people to Facebook your website or blog as well!

Knowledge Will Save You Thousands!
The Free Mortgage Calculator

Flipping Houses – Easy as it is on TV?

I’m sure you’ve seen a few programs on TV about flipping houses and making big profits because there’s quite a few now. Is it as easy as it looks? Can anyone do it? What’s the process they go through to buy it and sell homes for such big profits?

It’s definitely not as easy as it looks. They put a lot of work into making as much money as they do on each and every flip.

Finding the Home

Even before buying a home it takes time to find the “right” home to flip. They like to find homes that have a lot of damage to the inside but NOT the structure of the home. The structure will cost big money to fix and it’s not very noticeable to other buyers. Things like holes in the walls, paint, floors or rugs, ceilings and landscaping are good things to find wrong with a home. 

If it’s your first time flipping a home you should walk through it with a contractor or home inspector to make sure you don’t make the wrong decision. It would obviously help to have some carpenter experience yourself but it’s not needed.

Buying The Home

Once you found one that you want you need to negotiate the price and try to get the best deal possible. Every $1,000 off will increase you profits in the end by $1,000. The seller knows there’s a lot of work needed so they’ve probably priced it accordingly. You’ll need to do some research to figure out what the home is selling for in good condition. If it sells for $250,000 in good condition and you can get it for $170,000 then you have plenty of room to work with.

While you’re going through the home write down EVERYTHING you want to fix before selling it on the market. Then make a few phone calls to get an idea of the costs you’re going to have after buying it so you know if you can make money on this flip or not. Then you can try to cut costs later when you own it.

Home Improvements

If you’re borrowing power is high enough you can get a personal loan for the home improvements you want to do. Use a mortgage calculator to figure out the monthly payment for the amount you need and see if you can afford it.

Then you want to get at least 3 quotes for each project so that you can figure out the best price and the contractor that you trust the most for future projects. Find the cheapest price but be sure they do the best job and get all the legal permits that are needed with the city.

Finding A Real Estate Agent

You’ll want to check the real estate percentage that’s being taken out of the final price because if you can negotiate 1% off then you’ll save $2,500 on a $250,000 home. All numbers dealing with real estate are very big so the final profit can be anywhere from $10,000 to $100,000 depending on negotiation in buying the home, selling the home and all renovations that need to be done. Save anywhere you can!

Selling Your Home

Make sure you keep an excel sheet of EVERY cost you have during this process to see what the final profit will be. The cost of the home, interest payments along the way, taxes, insurance, closing costs, renovations and real estate fees when you sell it. That way you know the number you can’t go be low in order to make a profit.

Also keep track of ALL your hours spent on flipping this home from beginning to end so that you can see your rate per hour. If you end up making $20,000 profit and you spent 50 hours of your time on it then you got a massive $400 per hour! Sounds worth it to me!

The great thing about flipping a house is that you can do it while you still have your day job. It might take slightly longer because you work during the day but you can still make the phone calls and appointments after work if needed.

Make sure you look at your debt to income ratio, borrowing power and different types of mortgage loans available. I offer plenty of advise on each and every loan on my blog and website, show you how to figure out your borrowing power and debt to income ratio and show you how a mortgage calculator can help you save money on your mortgage.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Approve Yourself for a Mortgage Loan

Isn’t it funny how we rely on banks and mortgage lenders to figure out if we can afford a mortgage when it’s our own bills. Imagine if we let everyone approve themselves for a mortgage instead of setting restrictions and maximums for people. We’d end up buying a home WAY out of our budget.

Why do people do this? Just for the bigger home? Don’t they know they can’t afford it when they see what the payment will be?

I should be able to ask you a simple question and get a simple answer: Can you afford $500 per month right now? You should be able to write down all your bills and compare it to your income or you need to go back to first grade for a refresher in addition and subtraction.

1. Add up your income
2. Add up your bills (That’s ANYTHING that will subtract from your available income per month)
3. Income – Bills = Available Spending

This is a simple math problem that anyone can do yet we have thousands of people getting denied for mortgage loans everyday. Don’t tell me the banks aren’t fair because the only thing the banks do to make money is LOAN MONEY. So how would they be in business by denying everyone because they feel like not being fair?

Use a mortgage calculator to figure out the monthly mortgage payment and then divide the yearly taxes by 12 and add the two together. Now, back to the initial question, can you afford $800 per month (or whatever the number was that you figured out)?

I can’t imagine wanting something so bad that I’m going to get it when I can’t afford it just to get more in debt on a monthly basis. Then know that in a few years I’m going to be foreclosed on or I’ll somehow get a promotion to cover what I can’t afford. People like this should THANK mortgage lenders when they’re denied for the mortgage because they couldn’t afford it!! Or your credit score is low and you don’t deserve the mortgage anyways.

I’ve said it before and I’ll say it again, would you loan your friend $2000 when they just defaulted on there car payment? Probably not because you don’t trust them. Exactly why the banks don’t trust people with low credit scores because they obviously did something wrong in the past.

If you have a decent credit score and you figure out that you can actually afford a new mortgage payment and monthly taxes then you should be able to get approved. However, here’s the banks formula so that you can double check:

Borrowing Power and Debt to Income Ratio

1. 40% of your gross income (amount before taxes)
2. Divide by 12 for the monthly amount you can afford
3. Subtract all loans you currently have
4. DO NOT subtract house bills or car insurance
5. Subtract new mortgage and monthly taxes

If you didn’t go in the minus then you’ll be approved by the bank pending your credit score. Sometimes this formula works and sometimes it doesn’t. The reason it might not is because you spend a lot of money on food and entertainment. The bank has been working on this borrowing power formula for a long time and tweak it constantly because obviously people can’t do it themselves!

Assume you gave your son or daughter $2.00 everyday for school lunch and at the end of the year and here’s what happens:

Son: “Mom, I owe the lunch lady $30 and my I owe my friend $20 for lunch this year”.

Mom: “How is that possible when I gave you lunch money every day?”

Son: “Well the lunch lady gave me extra food and said I could pay her back later. Then she stopped so I borrowed money from my friend.”

Now your son basically has 2 maxed out credit cards and he’s about to get 2 collections people after him as well. Maybe he’ll get beat up on the playground by his friend to learn his lesson about borrowing and paying back. However, in the real world he can just claim bankruptcy, not pay anything he owes and then sue the kid who beats him up on the playground for millions.

Approve YOURSELF for a mortgage. You know exactly what you can afford if you look at your income and look at your spending. There will be an amount left over that you can afford per month for a new mortgage payment and taxes. If the bank accidently approves you for more you shouldn’t take it because it will just get you into more trouble later on.

Knowledge Will Save You Thousands – The Free Mortgage Calculator

How to get Approved for a Mortgage when You’ve been Denied

There are so many reasons for getting approved and denied for a mortgage loan, but the banks are in business to loan money and would be bankrupt if they denied everyone. They’re on your side and obviously have reason to deny your application if they have in the past. However you can’t give up!

First figure out why they denied your mortgage application with a specific answer. Maybe it was your debt to income ratio, your credit score, down payment amount or something else. Don’t get discouraged, figure out what went wrong and fix it.

Your debt to income ratio shows your income and subtracts all of your bills and expenses to show the bank a clear amount per month that you can afford for a new mortgage payment. Just like all businesses are different, banks have different guidelines to approve each mortgage. Some have a 40% debt to income ratio, some 35% and some as much as 45% so make sure you check around.

The next reason could be your credit score which makes you just think it’s impossible to ever get mortgage. Well I’ve seen plenty of people literally claim bankruptcy to clear all their debt and then buy a home within a year. If you have this problem read up on how to increase your credit score and start doing some of those things.

Think about what your credit score actually is. It’s a list of the loans you’ve had in the past and how well you’ve paid them. So if your score is low then I’m sure you know a few big reasons why it’s that low. The idea is to show that you’re able to pay back the loans that lenders give you.

Start using and paying off a credit card. That doesn’t mean you should go buy things you don’t have the money for, just use it for common things like your groceries and then pay it off each month instead of leaving the balance on it. It shows that you have control of your spending and the mortgage company will trust you with THEIR money.

If you looked at my credit history and saw that I had stopped paying one of my credit cards and been late on my car payment 9 times on a 5 year loan would you lend me $150,000 of your money and trust that I’ll pay it back? I can’t even handle a few thousand dollars on a credit card or a few hundred a month on a car payment so how could I really handle an entire mortgage payment.

Give them reason to trust you and they will.

A down payment is a different ball game but there’s ways around everything. Like I already said, every mortgage lender is different so the down payment amount will be different as well.

If you’re planning on living in the house you’re buying then the down payment should be very low in the 3-5% range. Again, imagine you’re the bank lending YOU money. Would you? 3% of $150,000 is only $4,500 which is a lot of money but not that difficult to save up for.

If you can’t come up with 3% of the house value then you must have pretty bad spending habbits OR you really can’t save the money and shouldn’t be looking at buying a home anyways.

Another way around the down payment issue is to get a personal loan for the amount you need. The only thing that does is lower the amount you can borrow by the monthly payment amount.

Example: You need 40% Debt to Income Ratio

You make $50,000 per yer before taxes – $4,166/mo

40% is 4,166 x .40 = $1,666

Now subtract all “loans” ( NO bills, insurance, expenses or taxes)

Car loan – 250
Student Loans – 150
New personal Loan – 180  ($8,000 at 13% over 5 years)

So You can afford $1,666 minus $580 in loans = $1086 available for your new home monthly payment and monthly taxes.

Some people say “WOAH! I would never pay 13% interest for a personal loan!”. Well that 13% interest only equates to $2,900 in interest over the 5 years of payments. Your new mortgage of $150,000 will include $174,000 in interest at 5% over a 30 year mortgage. An interest rate of 13% isn’t that bad when your loan is only for 5 years.

Use my free mortgage calculator at the bottom of this blog or on my home page to see what different options you have to stay within your borrowing power.

Debt to Income Ratio and How to Lower it

There are two types of debt to income ratios, yours and the banks. You know what you can afford each month so don’t go over that amount. Why would you? Are you really going to get that extra job, or work those extra hours to cover the balance? Probably not..

So the banks try to get every detail of your income and your bills in order to be sure you won’t be a “bad sale” for them. Don’t forget the banks are in business to loan money and WANT to give you a loan. Don’t assume they’re against you just because you aren’t getting approved for the loan that you know is over your budget anyways.

That being said, the banks usually allow you to borrow 40% of your gross income minus any other loans you may have. So if you make $50,000 per year ($4,166/mo) then you can afford 40% of that number which is $1,666 per month. Then minus your car loans, student loans and other mortgages or personal loans you might have. Also subtract the minimum payment on each of your credit cards.

After that you end up with $1,100 to spend on your mortgage. Not quite. Be sure to add in the new monthly taxes and condo fee if you’re looking at a condo.

Mortgage – $700
Taxes – $300
Car Loan – $250
Student Loan – $150

40% of Gross Income – $1,666   -   SUCCESS!

As long as your credit score is in line you should get approved for that mortgage payment.

Ways to increase your debt to income ratio are rather obvious. Get rid of your car loan and you’ll have an additional $250 per month to spend. You could wait an extra few months and put additional money to your car loan to pay it off before trying to get approved.

If that’s not in the near future there are more tricky approaches. Assume you’ve paid 2 years down on your $20,000 car with a payment of $377/mo. That means you’ve paid down about $8,000 if it’s at 5% over 5 years. Now, refinance your $12,000 balance over another 5 years (or even 6 years if the bank allows it) to get a new payment of $225/mo. That gives you an extra $150 per month to afford a bigger monthly mortgage payment. That’s about $30,000 of home over a 30 year mortgage! SO if you were looking at a $200,000 home, now you can start looking at a $230,000 home!

People always start the home buying process by saying “We can afford a $150,000 home”. Well that number can swing up or down quite a bit based on the interest rate you negotiate, the amount of taxes on that particular home and whether or not there’s a condo fee that needs to be included.

Remember every $150 per month you eliminate you receive another $30,000 worth of home to buy!

Finagle with your own bills and see if you can think of a way to lower your bills or increase your income per month to afford a bit more of home for you or you and your family. Please email me or comment on this blog with questions or comments about your mortgage.

Don’t forget to use my mortgage calculator! It will make you smarter just by playing with it, I guarantee it!

If You Think You Can’t Afford it; Chances Are You Can’t

The prospect of home ownership requires some serious financial soul searching. Before you even go shopping, you have to first figure out what you can afford. Maybe you’ve done this already and the prospects don’t look good. You know better than anyone and if you think you can’t afford it, chances are you can’t. The good news here is that there are some simple online tools that can help you make that decision. The tools are calculators that can determine your debt to income ratio, how much you can borrow and how much your mortgage will be and the term.

          First find a debt to income calculator, it’s the percentage of your gross monthly income that goes toward paying your debts. Input how much you make monthly and who you’re indebted to and for how much. Be sure to include all of your obligations such as mortgage payments, insurance and taxes, car payments-including taxes and insurance, credit card payments, student loans, alimony or child support. The lower percentage the better, it shows that you’ve been a good steward of your money and may qualify you for a better rate. A borrowing power calculator can determine how much you qualify to borrow based on your total income versus your debt obligations. You can use this in conjunction with a debt-to-income ratio calendar to help set goals and make you look as good as possible to lenders. Finally, you can calculate your mortgage by filling in the principal, interest rate and the term and you get an estimated monthly payment. You can compare interest rates, terms and varying down payments.

          If you’re dreaming about home ownership, online calculators are a great place to begin. You may be pleasantly surprised at what you can afford.