Other Mistakes People Make When Purchasing A New Home
#1 - Failure To Examine/Repair Credit Problems Prior To Loan
99.9% of potential
new homeowners and borrowers have no idea what type of credit they have
or how to repair any adverse credit which may exist. They fail to
realize that credit is one of the key factors in acquiring a mortgage or
refinancing a current mortgage. Credit problems not only slow down the
process of getting a home loan, but can damage your ability to make
numerous other purchases.
What is Good Credit?
Good credit usually means a person has about five or six solid pieces of
seasoned credit. In other words, a car loan, a current mortgage, a VISA
card, etc., which are at least two years old and indicate no late
payments. Of course, rarely is anyone's credit history perfect. One
30-day late payment on your credit report won't necessarily keep you out
of this category. Most underwriters, who approve your loan, are looking
for trends. Isolated incidents do not carry as much weight as an
established history of paying bills well past their due dates.
How Can I Repair My Credit?
In most cases, a simple letter or phone call to the credit card company
or business that originally gave you the credit can put you on the right
track for having the "scar" removed from your report.
Sometimes the company will require you to pay off the balance of your
debt or send in a letter explaining why you were late with your payment.
However, if you have a history of late payments, you may have to let
time take its course, waiting while you build up a record of timely
payments on outstanding debt.
Can High Levels Of Debt Affect My Ability To Buy A Home?
Yes. And there is an easy way to determine if you have too much. Most
loan programs will not allow your monthly mortgage payment (plus housing
expenses) to exceed 28% of your total gross monthly income. Also, they
will not allow your total monthly debt (mortgage payments, car loans,
installment loans, credit cards, rental losses and alimony/child
support) to exceed 36% of your total gross monthly income. (Note: these
are guidelines only. Special circumstances and special programs may be
able to overcome excessive ratios) If you exceed the 28% and 36%
guidelines, you may want to consider paying off some of your debt in
order to lower your monthly obligations before you apply. Remember,
however, that some loan programs have more lenient ratios (such as FHA,
VA, FNMA Community Homebuyer and Jumbos).
Mistake #2 - Failing To Realize (In Advance)
How Much Money A Lender Is Willing To Loan You
Whether you are planning on refinancing or purchasing a new home, most
lenders have strict guidelines on how much money they are willing to
lend. The lender's decision is typically based on the loan-to-value
ratio. In other words, lenders have limits on how much money you can
borrow based on the value of your home.
For example, if you are refinancing, most lenders will not lend more
than 90% of the appraised value of your home. So, if your house
appraises for $100,000, you would be eligible for a $90,000 loan,
assuming your current loan balance and closing costs equal $90,000 or
more so that you are not getting cash out of the property.
On the other hand, if you are planning to buy a home, most lenders
will allow your loan-to-value ratio to go as high as 95-97%, or even
100% with a VA or zero downpayment loan.
So, if you are planning on buying a new home, make sure you have at
least 3% of the purchase price - your own funds, or a gift - available
for the downpayment, plus closing costs. Closing costs include discount
points, origination fees, attorney's fees, etc. They often run anywhere
between 4% and 8% of the loan amount, depending upon your location and
loan amount. The larger the loan, the smaller will be the percentage of
that loan required to cover closing costs.
Is It Possible For Me To Take Cash-Out When I Refinance And Pay Off
Some Credit Cards?
Yes, but in most cases, this means you cannot borrow more than 80% of
the appraised value of your home.
What Can I Do If I Can't Come Up With A 5% Downpayment?
The vast majority of loan programs look to the borrower to make a
downpayment from his or her own funds of 5% of the value of the house.
As mentioned, some, like FHA, will accept
only 3%. Some of these still require 5% down, but will allow the
remaining 2% to come from a gift from immediate family members, grants
or unsecured loans from your employer, non-profit organization,
government agency or first mortgage lender. In addition,
if you are eligible for a VA loan, you can qualify for a 0% down payment
loan (provided that you have sufficient VA eligibility)!
I Am Self-Employed and Earning A Good Living, But My Tax Returns Are
Complex, Usually In Some Stage Of Completion, And Difficult To Put My
Hands On - Can I Get A Loan ?
Yes. There are a number of "no income verification" programs
available for people like yourself. Under the guidelines of these
programs, most lenders will not loan you more than 80% of the appraised
value of the property . They will require that you have strong credit, a
substantial amount of liquid assets and have been self-employed for a
minimum of two years (with some exceptions). If you fit this criteria,
there's a good chance you'll get approved for the loan you need.
Mistake #3 - Failure to Find A Reputable and
Experienced Mortgage Lender To Help Finance The Home
Associating yourself with a honest, high quality, and service-oriented
mortgage banker is probably the most important ingredient in finding
home financing. This is an important decision in your life - it is one
of the largest financial transactions you will make. It's not something
you want to treat lightly. Dealing with the right lender can mean the
difference between having your loan application approved or rejected.
So, how do I find the ideal person to handle my loan? This
shouldn't be too difficult. There are many reputable, knowledgeable
professionals. Just be sure to ask a few good questions before choosing
one. We recommend asking:
- Can you provide any references? If they do, then, call!
- How long have you been in business?
- How - and when - can I get in touch with you? Your loan officer
should be available through many channels (phone, fax, pager,
e-mail) at times that are convenient for you.
I also have a Free report "Buying
your First Home" available by email.