If you have debt but would like to purchase a home in the next 6 to 12 months, you may be worried that your current financial status will limit your buying power and mortgage options. Even in such a short period of time, though, you can make significant strides in improving your loan odds. Check out this list of tips from EXIT Realty Professionals to get your finances cleaned up and ready for mortgage applications quickly.

1. Know What Lenders Look For

There are many factors that go into your creditworthiness, but some are particularly of interest to mortgage lenders. Your credit score is compiled using factors such as your payment history, number, and kind of accounts, credit usage percentage, and collections. Check your credit score every month to keep an eye on the status of your accounts and catch any mistakes that can be damaging to your score and difficult to have removed.

Your debt-to-income ratio is also high up on their list of things to consider, with few aspects of your finances mattering more. Your DTI is simply how much you pay out each month versus how much you bring in and you can easily calculate it using an online calculator. This typically includes expenses such as car, personal loan, credit card, and student loan payments, as well as things like child support. For most lenders and situations, 43% is the magic number, meaning a ratio any higher than that might exclude you from being eligible for a mortgage.

2. Increase Your Credit Score

Improving your credit score can take time, but there are some tricks you can use to make more immediate gains. Although many bills are automatically reported to credit bureaus, some such as utility bills and rent payments are not typically included unless specifically requested. Services such as ExtraCredit can help you complete this process to get your on-time payments onto your credit report quickly.

Paying down revolving debt such as credit cards and other lines of credit improves your credit utilization score as lenders want to see you with credit utilization below 30%, although 10% is optimal. You can also increase your available credit by requesting credit line increases. Often, these requests don’t have the negative impact on your credit score that applying for new lines of credit can, and many companies will grant increases upon request, so it’s worth trying with as many creditors as possible. In most cases, this can be accomplished by signing into your online account and verifying your current income.

3. Consider Your Business

If you’re a business owner purchasing a home, you may want to take extra steps to protect your future home and personal assets against lawsuits and other claims. One way of doing this is by forming a limited liability company or LLC. LLC status helps business owners by separating them and their assets from their business which helps protect them in case there are issues with the business, but it also has other perks such as tax advantages and less paperwork than other business formations. You can even save money by filing for yourself online using a formation service, but check your state’s regulations first to ensure a Virginia LLC is the best fit for your situation.

Your financial history doesn't have to dictate your future. The home of your dreams is within reach. Knowing how to improve your situation is the first step on the path to it, so take advantage of these tips today and get on your way to the life you desire. Contact EXIT Realty Professionals to find your Virginia Beach home. (757) 425-6060

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