08
Apr
By First Rate Financial Group
Mortgage Tips

How Your Netflix Subscription Might Affect Your Mortgage Approval

When applying for a mortgage, you expect lenders to scrutinize your income, credit score, and debt-to-income ratio. But did you know that your Netflix subscription—or any other recurring expense—could play a role in your approval?

While a $15-per-month streaming service may seem insignificant, lenders are increasingly looking at all aspects of your financial behavior, including discretionary spending. Here’s how something as small as your entertainment subscriptions could influence your mortgage approval.

Open Banking and Subscription Spending
The rise of open banking has allowed lenders to gain deeper insights into your financial habits. Instead of just looking at credit reports and pay stubs, some lenders now use AI-driven tools to analyze bank transactions. That means your Netflix, Hulu, and Amazon Prime subscriptions, along with gym memberships, meal delivery services, and other recurring expenses, may be factored into their risk assessment.

Lenders want to determine how much disposable income you have after fixed expenses. If your bank statements reveal excessive discretionary spending, they might question whether you can comfortably afford your mortgage payments.

Debt-to-Income Ratio and Lifestyle Spending
Your debt-to-income (DTI) ratio is one of the most critical factors in mortgage approval. It’s calculated by dividing your total monthly debt payments by your gross monthly income. While streaming subscriptions aren’t technically considered “debt,” they are recurring financial obligations that impact how much cash you have left at the end of each month.

If your DTI is already near the threshold lenders consider acceptable—typically under 43% for most conventional loans—additional expenses, even small ones, could make a difference. Lenders may view excessive subscriptions or high entertainment spending as a sign that you are stretching your budget too thin.

How to Improve Your Mortgage Readiness
If you’re planning to apply for a mortgage soon, consider tightening up your spending habits:

  • Audit Your Subscriptions: Take a close look at all your recurring charges. Cancel unused or unnecessary services to reduce your financial obligations.
  • Minimize Discretionary Spending: In the months leading up to your mortgage application, try to keep entertainment and luxury expenses in check. A conservative approach to spending could improve your mortgage eligibility.
  • Show Consistent Savings: Lenders love to see a healthy savings account. Reducing subscriptions and unnecessary expenses can help you save more, demonstrating financial stability.
  • Keep Bank Statements Clean: Since lenders often request two to three months of bank statements, avoid any unusual spending patterns that could raise red flags.

While a single Netflix subscription is unlikely to make or break your mortgage approval, your overall spending habits do matter. The rise of open banking means lenders can see more of your financial life than ever before. Taking proactive steps to manage your subscriptions and discretionary spending can strengthen your mortgage application and improve your chances of approval.

03
Jan
By First Rate Financial Group
Credit Scoring

Start the New Year with a Clean Slate

As we step into a new year, it’s the perfect time to focus on understanding and improving your credit score. Whether you’re planning to buy a home, refinance, or simply enhance your financial health, your credit score plays a pivotal role in shaping your opportunities. Let this be the year you clean up your credit and take control of your financial future!

What is a Credit Score?

Your credit score is a three-digit number, typically ranging from 300 to 850, that represents your creditworthiness. It’s used by lenders to assess how likely you are to repay debts on time. Scores above 700 are generally considered good, while scores above 800 are excellent. A strong credit score not only increases your chances of mortgage approval but also helps you secure better interest rates, potentially saving you thousands over the life of your loan.

How is Your Credit Score Determined?

Credit scores are calculated using five key factors:

  1. Payment History (35%): Paying bills on time is the most critical component. Late payments, defaults, or bankruptcies can significantly lower your score.

  2. Credit Utilization (30%): This measures the percentage of your available credit you’re using. Keeping utilization below 30% can boost your score.

  3. Length of Credit History (15%): A longer credit history can positively impact your score.

  4. Credit Mix (10%): A mix of credit types, such as credit cards, auto loans, and mortgages, can benefit your score.

  5. New Credit (10%): Frequent credit inquiries or opening multiple accounts in a short period can lower your score.

Why Cleaning Up Your Credit Matters in the New Year

The start of a new year is a great time to review your financial health and set goals. Cleaning up your credit ensures you’re ready for major financial decisions, like applying for a mortgage or refinancing an existing loan. Even small improvements can make a big difference in the interest rates you’re offered, saving you money in the long term.

Steps to Clean Up Your Credit

Here’s how you can start improving your credit score this year:

  1. Check Your Credit Report
    Begin by obtaining a free copy of your credit report from AnnualCreditReport.com. Review it for errors, such as incorrect account information or unauthorized activity, and dispute any inaccuracies with the credit bureaus.

  2. Pay Bills on Time
    Make paying bills on time a priority. Set up reminders or automatic payments to ensure you never miss a due date.

  3. Reduce Debt
    Focus on paying down credit card balances to lower your credit utilization rate. Aim to use less than 30% of your available credit on each card.

  4. Avoid New Credit Applications
    While it may be tempting to open new accounts, avoid applying for credit unless necessary. Multiple inquiries can temporarily lower your score.

  5. Keep Old Accounts Open
    The length of your credit history matters, so avoid closing older accounts, even if they’re no longer in use.

  6. Monitor Your Credit Regularly
    Keep an eye on your credit score throughout the year. Many banks and credit card issuers offer free credit monitoring tools to help you track your progress.

How a Better Credit Score Benefits You

Improving your credit score isn’t just about meeting lender requirements—it’s about gaining financial freedom. A higher score can:

  • Qualify you for lower mortgage rates.

  • Increase your negotiating power with lenders.

  • Provide access to better credit cards and loan products.

  • Improve your overall financial confidence.

This New Year, commit to cleaning up your credit score as part of your financial goals. By understanding how your score works and taking proactive steps to improve it, you’ll set yourself up for success in 2025 and beyond. Whether you’re dreaming of homeownership or just aiming for better financial health, a strong credit score is your ticket to achieving your goals.