Re.engineer Magazine - Winter 2022

F I N A N C I A L L I T E R A C Y

HOW TO HAVE THE BEST MORTGAGE APPLICATION EXPERIENCE

A combination of investing while paying off debt is a better way to increase your net worth. Tip: A combination of investing while paying off debt is a better way to increase your net worth. Don’t rush to pay your student loans back. Instead, refinance and restructure them for the lowest rate and longest repayment term. Set up your bills to be paid automatically from your bank’s bill-pay feature on the day your paycheck arrives. Then forget about them! Spend your time and energy making smart investments. Don't let fear of debt lead you to make financial decisions that will cause you to lose money in the long run. Now that we have discussed why paying off student loans is a bad idea, let's discuss investment options so your money makes money for you. You can invest in a number of products ranging from series 1 savings bonds (currently earning a rate of 7.12%) to cryptocurrencies. With mortgage interest rates currently below inflation rates, you would essentially be getting paid to buy a home!

Here are a few terms to learn before you apply for a mortgage. The goal is to be eligible for the maximum loan amount and get approved easily especially if you're planning to purchase multiple properties or a multi-family property.

Credit Seasoning

This simply refers to having and using credit lines. It is important to show good payment history with no late payments, judgments nor accounts in collections. If your credit score could use some improving, seek out a reputable credit repair agency that has been in business for at least 10 years. Don't overthink it! You can always talk directly to a loan officer about options such as FHA loans which tend to be pretty forgiving.

Debt to Income (DTI) Ratio

This is a ratio lenders use to determine how much house you can afford: DTI = Monthly Debt ÷ Monthly Gross Income Monthly debt is determined by anything showing on your credit report. Think credit cards, car loans, student loans. Your phone bill, utility bill, rent, daycare, etc. is not included in this number. Your gross monthly income is what you earn prior to any deductions (taxes, social security, FICA, etc. Most lenders will approve you for a loan that will give you max of 36% DTI. FHA loans will allow 43% DTI but you will have to pay for private mortgage insurance (PMI) which will make your monthly payment higher. How do you qualify for a large amount in order to buy a larger multifamily house or more than one property at a time? Maximize your DTI ratio by increasing your income and/or reducing debt payment amounts. Notice I said reduce debt payments not debt. Again, I recommend that you focus more on reducing your debt payments rather than paying down the principal of your loans. Most people will advise you to pay your debt off before you buy a house. This advice has led many people to delaying the purchase of a home because it can take years to pay off debt. What you can do is restructure, consolidate, or refinance your debt. You can do this with student loans, credit cards, car loans, any kind of debt. If you want to maximize your debt to income ratio even more, look for ways to increase your income. Consider taking on a 2nd job or starting a business. In today's world, there are so many ways to make additional money including starting an online business. Google “business you can start with little to no money" and find one that resonates with you. Of course, my favorite way to increase income is with real estate investing. Even though real estate investing will add to your amount of debt, investing in the right property will bring in additional income and offset the acquired debt. ▪

Jhanel Wilson is a chemical engineer turned real estate investor and entrepreneur. As the

founder and CEO of The Savvy REI, she shares her 17+ years of personal strategies and hard lessons to help people understand, master and succeed with real estate investing.

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