So you're in the market to purchase a home. A few years ago, purchasing a home was thought as achieving the American Dream. The real
estate market crash of 2008 drastically changed the views of many Americans. Purchasing a home become a financial nightmare for some
as the market quickly crumbled. Don't get caught unprepared. There are several steps you should consider before making such a huge
commitment. So getting the right mortgage, understanding the process is essential, because you will be committing to a 15 year or 30
year contract to purchase.
Remember, purchasing a home is totally different than other major purchases. Once you sign on the dotted line, you've committed
yourself to 15 to 30 years of payments.
Before you purchase, here are some items to consider:
- Credit History and Credit Score
- Employment History
- Down payment options
- Two year tax returns
Credit - Is important because it shows your worthiness of making good on your obligations. Credit scores are determine by the three
reporting credit agencies which are; Trans Union, Experian and Equifax. Financial institutions can determine what credit score you
should have before they commit to a mortgage, the scores can range from the lower end of 580 to higher. The better you credit score,
the better your chances of attaining a mortgage.
No Credit - Alternative options will be your utilities (electricity, gas, water, trash), lenders will check to see if you pay
utilities on time.
Employment - You will need at least two years of continuous employment. Financial institutions wants to make sure you have a
history of being employed.
Down Payment - The majority of financial institution would like for you to put down 20%, but there are other programs that
financial institutions offer, that will allow no down payment, 5%, 10%, or even 15% down payment. The reason behind the down payment
is that financial institutions feel that if you have a financial interest in the property, you are less likely to walk away from your
Saving - financial institutions like for you to have 3 to 6 months of reserves which are mortgage payments, to make sure you're
not over extended, if you run into hardship you will mostly survive the financial hit. Your reserves can be from the following;
Taxes - You will have to provide the lenders with your 2 years of tax returns. This how lenders or financial institutions can
verify your true income.
Taxes - Please do not falsify your application to lenders you can get into big trouble. Some individuals have actually gone to
jail, because they falsified their application.
Debt To Income Ratio - This DTIR is a ratio used to determine if you have enough income to pay your bills, to live on comfortably,
without putting yourself at risk of defaulting on your obligations or debt. So for example to determine your DTIR you will add all of
your debts, what you owe such as; (rent, car payments, electricity, gas, trash, credit cards)/ divide that figure by your gross income,
this will determine your DTIR, hopefully it is not greater than 45%.
Bill Payment History - This is where the financial institutions or lenders will examine your credit report to see if you pay your
bills on time. If you have too many late payments, this does not shine a positive light on your ability to pay a mortgage. If you are
always late, this makes the lenders think that you are in financial trouble, they will not want to take a chance on giving you a
mortgage for hundreds of thousands of dollars, if you cannot pay a few hundred dollar bills.
Getting a mortgage is straight forward, fairly simple, but you have to prepare yourself mentally for the long term commitment of 15 or
30 years. If you are serious about purchasing a home, make sure you do not add to your debt ratio, using your credit cards or making
long term commitments on any items. Try as best as you can, to pay all cash, until you get your mortgage approved. Happy hunting for
lenders to get the best possible deal.
P.S. One last note, it is not a good idea to co-sign for others. Co-signer are responsible for the debt in the event the applicant
cannot or will not pay. In essence, you've taken on more debt which can increase your debt ratio.
For more information contact
Intero Real Estate