Ranches can be financed with USDA loans with $0 down payment.
One of the first steps in buying a home is evaluating your finances. Lenders look hard at your credit score and history of making payments on time. Borrowers can raise their credit score within months most of the time.
If your debt is more than 40% of your income, consider consulting debt management assistance. Your Tallahassee Realtor will have recommendations for local organizations to help you improve your credit score. Read the fine print carefully. Some can only guarantee a temporary improvement in your score, and most of what they are going to do for you can be done by yourself – free of charge.
Steps to Increase Your Credit Score
- First, pull a copy of your credit report and read over it carefully. This can be done at Free Credit Report. The federal government passed a law that guarantees every consumer can have a free copy of their credit report once a year. During COVID you can get an updated copy every week (until April 2022). If there is anything on there that is not your charge, contest it right away. Fraudulent charges can lower your credit score and be an easy way to raise your score.
- Pay your bills on time for at least six months. Timely payments are one of the biggest parts of your credit score and with six months of no late payments, your score will be significantly and positively impacted.
- Check with your credit card account holders about a credit increase. It is important NOT to spend this amount so that you can benefit from a lower credit utilization rate. Lenders like to see that you use credit wisely and that means not maxing out the cards each month. Aim to have at least 2/3 of the credit available.
- Do not close credit card accounts, even if you are not using it. Depending on the age of the account and the credit limit not used, you may hurt your credit score if you close that account. Pay down debt, but do not close accounts. Older accounts let lenders know that you will stay around and pay your bills.
- Negotiate the terms with creditors. Credit repair companies will negotiate with your creditors to lower your monthly obligation or even your entire debt. This is something that any person can do for themselves, for free. If you do not have the time, or just prefer someone else to guide you through it, make sure you thoroughly investigate the company you choose.
Debt-to-income (DTI) Ratios
You will likely hear your lender mention DTI at some point during the process of buying a home. It is one way the lender will measure the risk of lending money to a buyer. The DTI is the total of all monthly debt payments divided by gross monthly income. The lower this percentage (or rate, or ratio) is the less likely the buyer will struggle to make monthly mortgage payments. Research has shown that borrowers with high DTIs have more trouble meeting their monthly debt obligations.
Personal loan providers will usually be laxer on this ratio and allow a higher DTI ratio than mortgage lenders. Each lender can set its own requirement for the DTI ratio. While a DTI of 20% or less is considered low, the Federal Reserve considers a DTI above 40% a sign of financial stress. Most lenders want a DTI lower than 43% to qualify a buyer for a home loan. The required debt-to-income ratio for student loans vary by lender, and type of loan, and buyer’s credit score.
As a rule, it is a clever idea to keep your debt-to-income ratio at less than 36%. In this range, new lines of credit will be easy to obtain. If your DTI is between 36% and 42%, lenders may be concerned about your ability to repay. Consider paying down your debt. At this level, you can do this yourself. If your DTI is over 43%, paying off debt may be extremely difficult. Some creditors may decline your application for more credit. At this level, it may be worth looking into debt management or a nonprofit credit counseling agency. There are several online options and many local options as well.
Your Tallahassee Realtor with have experience with local professional who can help.
