November 2018

New year, new home

If you might be in the market for a new home next year, now's the perfect time to get prepped. Learn as much as you can now about mortgage approvals and how lenders make their decisions, before the holidays are in full swing.

Here are six tips that could help ease the path to approval in 2019.

1. Think like a lender

Lenders want to know first and foremost that you will be able to repay your loan. To evaluate this, one of the key factors that the loan underwriter considers is your debt-to-income ratio, or DTI. This is simply the percentage of your monthly pre-tax income that you have to spend on your monthly debt payments plus the projected payment on your new home loan. (Our Better Money Habits® article explains how you can calculate your DTI, quickly and easily.)

2. Keep your DTI low

Keeping your DTI to lower than 36% is a good rule of thumb, but different lenders have different requirements. If you need to lower your DTI, you can do that in a few ways:

  • Prioritize paying off your debts, such as credit cards and student loans
  • Increase the amount of your down payment, which means you can decrease the total amount you need to borrow
  • Look for ways to add new income sources to increase your current income level

3. Review your credit history

Lenders will also check your payment history and credit score to evaluate how likely you are to repay the loan. With that in mind, take time to review your credit report well in advance of beginning your home search. That way if you find any errors or issues, you have time to address them.

4. Save for your down payment

In addition to your debt and credit situation, your lender will want to know how much you have saved for a down payment and closing costs. Typically if you have a down payment of less than 20% of the purchase price, you'll be required to pay for private mortgage insurance (PMI), which will increase your monthly mortgage payment.

So use the time between now and whenever you're ready to start house hunting to save as much as you can. Check out our easy, everyday savings tips for ideas on where you might be able to trim your current spending.


5. Check out low down payment options

If you aren't sure you can afford a large down payment, that doesn't mean you have to give up on the dream of homeownership! Search for low down payment options and cost savings programs in your area with the Bank of America Down Payment Center.1 Plus, check out the Affordable Loan Solution® mortgage, which offers a down payment as low as 3% for qualified buyers.2 Income limits apply.

6. Get prequalified

When you're ready to start house hunting, getting prequalified is a good first step before you put an offer on a home. That will give you an idea of how much you may be able to borrow.

Want more information about home financing or prequalification?3 I'm here to help, so feel free to contact me — or visit my website for more information.



"How mortgages are approved,"




1Down payment and/or closing cost assistance programs may not be available in your area. Down payment and/or closing cost assistance amount may be due upon sale, refinance, transfer, repayment of the loan, or if the senior mortgage is assumed during the term of the loan. Some programs require repayment with interest and borrowers should become fully informed prior to closing. Not all applicants will qualify. Minimum credit scores may apply. Sales price restrictions and income requirements may apply. Homebuyer education may be required. Owner-occupied properties only. Maximum loan amounts may apply.



2Available for fixed-rate purchase loans with terms of 25 or 30 years and on primary residences only. Certain property types are ineligible. Borrower(s) must not have an individual or joint ownership interest in any other residential property at time of closing. Maximum purchase loan-to-value is 97% and maximum combined purchase loan-to-value is 103%. For loan-to-values >95%, any secondary financing must be from an approved Community Second Program; ask for details. Homebuyer education may be required. Restrictions apply regarding co-borrowers. Maximum income and loan amount limits apply.



3Prequalification is neither preapproval nor a commitment to lend; you must submit additional information for review and approval.



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