"Don't buy that car right now, dear"

If you're in the market for a mortgage loan, you want to keep one thing high and one thing low. 

You want to make sure that your FICO credit score is high and your debt-to-income ratio is low.

If you are seeking a loan, most often the loans officer will do a credit check on you.  The most popular credit report comes from FICO, which stands for Fair Isaac & Company, and credit scores are reported by each of the three major credit bureaus: TRW (Experian), Equifax, and Trans Union.  On a scale between 365 and 840, a score of 680 will put a smile on the face of your loans officer, and greatly assist you in your quest for a mortgage loan.

On the other side of the coin, the lending company will also want to ensure that your debt-to-income ratio is low.  This is the ratio of how much you owe compared to how much you make.

Sometimes when people are hunting for a house, they wish to purchase other large ticket items like furniture, appliances or a CAR.  Now, all of these things are great, but there is a time and place for everything.  And the wrong time to make these purchases is when you're applying for a mortgage loan.

Why?  Because originally the borrower would have qualified in the price range they were looking for, except that the new car payment has raised their debt-to-income ratio, thus lowering their maximum purchase price.

Secondly, how many times have you heard this statement……Buying your first home is probably one of the biggest financial transactions you'll make in your lifetime.

Well, it's true. Before you go out and fall in love with that perfect house, make sure you can afford it.  There is nothing worse than finding the perfect house, and then finding out from the bank that they won't give you a big enough mortgage to buy the house of your dreams.

Here are the areas you should have answers for before you go house hunting.

Rent versus Buy

1) compare monthly rental versus monthly mortgage payments;
2) compare the cost of renting to the after-tax cost of owning; and
3) see how rent increases, price appreciation and down payment adjustments can affect    your decision. 

How much house can I afford?

Use a Home Affordability calculator to determine your price range, and the size of mortgage you need, before shopping for a home. This important step will help you avoid unnecessary frustration by focusing on homes in your price range.

Why should I get a pre-approved mortgage?

There are 2 main reasons for getting pre-approved.

1)    You will know exactly how much you can afford, and just as importantly…

2)    You can negotiate the best price because the seller knows you are serious and you have the resources in hand to make the deal.  And if you see a house for $250,000, but are only approved for $225,000, you may get the house for $225,000 because the seller knows that's all you have, and he may wish to sell quickly instead of holding out for a higher price later

Other things to consider...

Resale factor is a big issue when looking for a home, and can impact on your first time mortgage loan. Also, don't forget about tax deductions when trying to decide on the size of your first mortgage.

When looking for the perfect home, before you apply for your first mortgage, remember to think resale factor. In some areas, a swimming pool actually detracts from a home's value and makes the home harder to sell. In neighborhoods with two-car, attached garages, a single-car or detached garage may impact the home sale and future value. Your Realtor can point out features that hurt, as well as those that help, resale value.

Consider taxes. When you buy a home, mortgage interest and property taxes are generally deductible from income taxes. This means while monthly housing costs may be larger when you own than when you rent, what you save in taxes can make up some or all of the difference. For details, speak with a tax professional before your final approval on a first time home buyer loan.  

About The Author

Dave Frizzel is a successful freelance writer providing helpful tips and advice for consumers on mortgages, second mortgages and equity loans.  His many years of mortgage industry experience have helped others understand the business.