THINGS TO KNOW BEFORE YOU APPLY FOR HOME FINANCING
CREDIT HISTORY – This is extremely important in qualifying for a loan. Lenders are very interested in seeing how you have handled debts in the past. Those with excellent pay histories will find it much easier to obtain a loan that those will poor histories. Credit scores of 620 are the usual minimums for many programs. Credit scores of 680 are considered good and scores above 720 are excellent. Those with credit scores below 600 will have to use alternative programs that both cost far more and require much more downpayment. Lenders also look for collections, tax liens and judgments – and if they you have any you will probably have to pay them off. Having a credit history is very important in getting a loan. Lenders generally look for at least four “trade lines” that have been open for at least two years. However, no credit history is still better than a bad credit history, and many times “alternative credit” can be developed by contacting utilities, landlords, auto insurance companies and so forth to get their written statements as to how bills are paid.
INCOME – Lenders can only use documented income for most programs. There are programs available for those who do not wish to document their income, but they are generally more expensive than fully documented loans. Be sure to keep at least your latest two months worth of paychecks. Be sure to keep a copy of your W-2 statements from at least the previous two years. If you are self-employed, you will likely need to have been in business for two years and you will need your personal and business tax returns for two years at application. Additionally, you will have to have a year-to-date profit and loss statement prepared at application.
ASSETS –Lenders can only use documented assets for most programs. There are programs available for those who do not wish to document their assets, but they are generally more expensive than fully documented loans. Be sure to keep at least your latest two months worth of all asset account statements. Sudden increases in dollar amounts in accounts will cause questions and those funds might not be counted towards required funds you must have in order to buy. There are limits on the amount of “gift” funds you may use. Funds in an account for at least two statement cycles are considered “aged” and no questions as to where they came from will be asked.
LIABILITIES – Lenders will look at your credit report and count debts such as credit cards, student loans, car loans and leases and so on. They do not count such items as rent, utilities, cable bills, and so on as they are usually not on your credit report. Generally, installment accounts with less than ten payments left generally will not be counted. Shared debts (e.g. cosigning on a car loan) do not have to be counted if the applicant can document that the other party has been paying on their own for at least one year.
THE HOUSE – Most lenders will not allow an applicant to borrow more than a home is worth, and that is why an appraisal is completed. Your Realtor will help you in finding a house you can afford and making an offer. However, do not select a house that is in need of serious repairs, as most lenders will not do financing on them. Cosmetic items are generally OK as long as the basic structure of the house is in good condition. Also, look for a home in an area that is increasing in value or at least not decreasing in value. Do not consider buying in a neighborhood where values are declining.
ALL OF THE ABOVE ITEMS NEED TO BE TAKEN INTO CONSIDERATION AND THE TIME TO DO SO IS WELL PRIOR TO STARTING YOUR SEARCH FOR A HOME. KEEPING YOUR FINANCIAL HOUSE IN ORDER IS THE BEST WAY TO START ON THE ROAD TO HOME OWNERSHIP.
