The dream of homeownership is part of the American dream. That house with a white picket fence. Homeownership has many benefits, including no more nagging landlords and the opportunity to build wealth for future generations.
Most people buy a house with a downpayment and a mortgage. The more you can put towards the downpayment, the less you have to borrow for the house. A mortgage is an asset-backed loan. In the case of a home purchase, the lender provides the funds to buy the house while keeping the house as collateral to secure the loan.
For some of us, there are some obstacles before we can close on our dream house. Mortgage in the USA requires a minimal FICO® credit score of 620. A bank or a mortgage company will not approve a loan without that minimal credit. The credit score is supposed to predict the borrower's probability of meeting future financial obligations. Also, the mortgage rate is connected to the loan terms. Borrowers with a higher credit score get mortgages with better rates because they are considered safer.
The process of checking if you meet the requirements to get a mortgage is called mortgage qualification. Tens of thousands of mortgage applications get rejected each year. A financial coach can work with you before or after the mortgage application, improve your financial health, and enhance your chances of getting your mortgage application approved.
How can a financial coach help make sure you qualify for a mortgage?
Many factors affect your credit score. Yet, it can be summarized as debt to income ratio (DTI). The ratio is how much you owe in loans and debt in proportion to your income.
Financial coaches work with clients to take the following actions to improve their credit scores:
Improve the DTI by reducing debt
Increase savings for a downpayment
The financial coach works with the clients on a financial plan to meet the above goals of reducing debt and increasing savings. The financial plan to reduce debt and increase savings includes setting a budget and paying off debt. The financial coach works with the clients on their money management skills and is another layer of accountability. With a financial plan to pay off debt, each dollar has an address where it is supposed to go. Most people will meet the DTI ratio in several months with focus and commitment,
An added bonus from working with a financial coach to improve your DTI ratio results in a higher credit score. A better credit score gets you better mortgage terms, resulting in lower payments on the house over time.