Long before well-prepared Costa Mesa homeowners arrive at the signing table, they will have been aware of the factors mortgage lenders pay attention to—foremost among which is their bill-paying history. For years, they will have avoided making late payments—or underpayments. They will have corrected erroneous negatives on their credit reports and straightened out any historical inaccuracies.
If they have read up on how home loans are originated, they will know that a second weighty factor is “amounts owed”—but that’s a term that can be easily misunderstood. It turns out to include more than the term implies.
You’d think that “amounts owed” would be a simple dollar amount. If John and Jenny Smith have credit card debt totaling $8,000 and a car loan with a remaining balance of $12,000, any Costa Mesa home loan application would trigger a credit report detailing that $20,000 owed. If their incomes made that an easily sustainable debt load, John and Jenny would probably assume that their “amount owed” wouldn’t be a problem. That could well be the case—but what the lenders are more interested in is not the $20K.
Instead, they see a percentage.
To the mortgage decision-makers, “amount owed” also includes a debt-to-credit ratio. If the sum of the credit limits on all of their credit lines totals $60,000, that ratio would be a comfortable 1:3—that is, two-thirds of the amount they could have borrowed remains untapped. But if their credit limits total something closer to the amount they actually owe, it makes adding to that debt a riskier proposition. In the most extreme case—if they had borrowed almost all of their credit cards’ limits—it would understandably create a question mark in the lenders’ minds. It would mean that high-interest rates would be attached to any home loan offers (if any offers were forthcoming).
The implications for Costa Mesa real estate borrowing is straightforward.
1) Accept credit limit raises when offered—even if you have no intention of tapping them
2) Keep credit accounts active by using them from time to time—but keep the balances owed modest. Observing those two simple rules will make for a debt-to-credit ratio lenders love.
Early preparation for future home ownership is certain to pay off when that future arrives. Call us whenever a question about Costa Mesa real estate matters arises—We’d love to chat!
We are built on a philosophy of Heritage & Hustle. The L3 is a full service real estate agency with a regional office located in the heart of #CostaMesa, offering a wide-array of custom services to meet their clients’ needs with roots in the community since 1976. It’s L3 mission is to provide trusted, convenient, responsive service to ensure clients enjoy their real estate experience. The L3 was originally formed to offer personal, concierge-level service as an alternative to the large, nationally based real estate companies. From its small beginnings of only two employees, The L3 has grown to a full staff of 25 serving over 300 clients a year. The L3 is not limited to serving just its clients; it is also committed to serving the community. Not only has The L3 donated hundreds of hours to many area charities, they have also received the prestige of being named one of the #toprealestatecompaniesinCostaMesa If you’re interested in #buyingorsellinginOrangeCounty, turn to the experts. Turn to The L3 and let them help you make your real estate buying or selling dreams come true. For more information or to get started on finding or selling your home contact The L3 today at 714-444-4663 or email us at firstname.lastname@example.org