How to Buy an Apartment in Manhattan and Get the Best Interest Rate
1. What all goes into the interest rate a buyer receives?
FICO scores from 3 credit reporting companies (Experian, Transunion & Equifax).
A history of payments (lates, charge offs, how much of this credit is actually used by the consumer). You will want to keep the balance low in relation to what total credit is issued you. For instance, you have a total of $100,000 in usable credit; you have $2000 in debt, that’s good. 20% is often the acceptable number for, “knows how to handle credit well”.
Your debt to income ratio also is also considered into the interest rate that you will receive and if you are even eligible for a loan! Your total monthly obligations in relation to your income will compromise your debt to income ratio. 30% of your annual income is a rough estimate of what you can afford for your monthly housing expense– assuming that you do not have high monthly obligations due to credit card bills, car loans, student loans, department store charge cards, etc. that over-extend you on the back end.
2. What can do to control and affect how good an interest rate you will get?
Clear up any missed or late payments for the past 3-6 months. And don’t be late or open any new lines of credit.
Don’t have your credit pulled unnecessarily. For instance, don’t open a credit card for a furniture store, then at a home improvement store, department store then purchase a car. This can cost you 10-20 points an inquiry.
It is okay to get your credit score pulled a hundred times by different lenders for a home loan, it is understood by the FICO models that the consumer is shopping around for a loan. It will be considered one pull.
Pay down any debt that is close to the maxed out limit of your credit card. A maxed out $500 Home Depot charge card can cost you 100 points.
Do NOT close any credit cards because history is just as important. It also gives the borrower a larger amount of credit on the books; that is unused. For instance, you used 10% of the total credit being issued ($1000 of a $10,000 line), you are shown to handle credit wisely; versus if you close down a card and your line of credit goes from 10k to 5k, you are now at 20%. This high debt to income ratio can also affect your score drastically which in turn affects your interst rate.
3. What can buyers do to ensure they get the best rate possible given today’s market conditions?
Clean up your credit before shopping for a home, pay down any and all loans you can, and DO NOT alter your purchasing habits, and keep it pristine until you close. No buying new appliances, furniture and car to match the new apartment in Manhattan. You can do this after.
Also, be aware if you lose your job in the midst of the process of buying the Manhattan property, you will NOT be approved for the loan.
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