Five keys to buying a home

Next to saving for retirement, purchasing a home is one of the most significant financial events for most Americans. Interest rates remain at historic lows. Yet many buyers are sitting on the fence unsure whether now is the right time to buy, and if they would even qualify for a loan.

There’s no magic bullet to get you the loan you want, but here are a few things you can do to get on the right path to homeownership:

•Check your credit — know where your credit stands before you apply for a loan. A borrower’s credit history can impact the amount required for a down payment, the interest rate, or the amount of money you can borrow. Having a credit score of 720 or above is not only going to help you look better to a lender for loan approval, it may also help you get a better interest rate.

Once a year, you may obtain a free copy of your credit report from each of the three credit bureaus by visiting annualcreditreport.com. In addition to viewing your report, you may also want to consider getting your credit score. There may be a small fee to get your credit score.

To learn more about understanding and improving your credit scores, visit the Wells Fargo Smarter Credit Center found at wellsfargo.com/smarter_credit. The site has great information on establishing, improving, and protecting credit as well as tips on paying down debt.

•Decrease your debt — An important factor that lenders evaluate is your debt-to-income ratio. This is the relationship between your income and expenses, amount of debt you owe compared to how much income you make. The smaller your debt-to-income ratio is, the more attractive you are as a borrower. While debt-to-income requirements vary by mortgage programs, a good rule of thumb is to keep your total debt level at or below 36 percent of your gross monthly income.

•Save for a down payment — in the current mortgage environment, a down payment is required for most loan programs. However, a 20 percent down payment is not mandatory and there are some loan programs available that provide lower down payment options. Keep in mind that some low down payment programs may require private mortgage insurance, which adds to the monthly payment and overall loan cost. If you need help coming up with a down payment, look for a down payment assistance program.

•Show proof of all income — Borrowers must demonstrate their ability to repay the loan and provide documentation of income sources. Lenders will review income history and require current W2s, tax returns or other documentation.

•Have money in the bank — In addition to showing an ability to make your monthly mortgage payments and other financial responsibilities, lenders want to see that you have savings or a cushion. Some call this cushion a “rainy day fund,” which can be used to handle unexpected expenses that come with home ownership such as a roof leak or a failing appliance. A good rule of thumb is to have savings for at least six months of expenses. This illustrates to a lender that you are financially responsible and capable of putting money aside.

Ryan Berry is Wells Fargo Home Mortgage branch manager for the Mat-Su. Contact him at (907) 352-5207 or ryan.j.berry@wellsfargo.com.