Build Your Mortgage Borrowing Power
Getting Approved for a Mortgage
Qualifying for a mortgage in today's market requires some preliminary work for you as a borrower. The stronger your borrowing power, the more likely you will get approved for a mortgage, and at the best possible interest rate. You can build your mortgage borrowing power by following these steps:
Lenders look for borrowers with stable employment. Two years in the same job or at least in the same occupation is considered the minimum. Don't change jobs (unless it's going to increase your income significantly, it will decrease your borrowing power) if you are thinking of buying a home.
Don't start a new business within two years before applying for a mortgage. Some people like entrepreneurs, but lenders don't.
Lenders judge you on how you have repaid your previous loans. Before you start looking for a loan, get a free credit report so you know where you stand. Nothing will increase your mortgage borrowing power more than good credit.
Your credit report will show your lender all of your past and current debt. It also will show if you paid on a timely basis. The best advice is to make all of your credit payments on time. You will be asked to explain any late payments on your credit cards, car payment or mortgage loan. Don't say you forgot. Lenders don't accept this as a reason to be late. If you have a mortgage, don't make payments after the 30-day grace period. Conventional lenders will not give you a mortgage if you have been late in the past 12 months.
There are lenders who will make loans to people with poor credit histories but these loans are hard to come by in today's mortgage loan market. And if you do get approved it may be at a high interest rate and with risky interest rate adjustments.
Do not buy anything new.
If you know you are going to buy a new home, don't buy a car or other big-ticket items on credit. Your total monthly bills will be added up to see if you can afford the home payment. The higher your monthly bills, the lower the amount of the mortgage for which you will be qualified.
Do not buy anything even if you are going to pay cash. Lenders like to see money in the bank.
Savings for Down Payment
When you start thinking about buying a home, start saving money or add to your savings.
The more you put down on the purchase price, the lower your monthly payments. A larger down payment also makes it easier to qualify for a loan. Costs associated with home loans generally add up to about 5 percent of the loan amount. The lender will want to verify that you have enough money to pay these closing costs and cover your down payment.
In today's market, there are loans that have no closing costs if you are willing to pay a higher interest rate. This is a good idea when money is tight at closing, but it could be more expensive if you live in the home for a long time.
Do not get your down payment from a sock under the mattress. You should be able to show that you saved the money yourself so keep all of your savings in one account. The lender is going to want to see several months of bank statements verifying your savings. Lenders will typically allow you to receive part of your down payment as a gift. The gift giver will be asked to provide a letter stating that he gave you the money and he doesn't expect to be repaid.
Your income is one of the most important ingredients for qualifying for a home loan. It will be used to determine the amount of mortgage you can afford.
If you are self-employed, you will be required to provide a copy of two years worth of tax returns. Only the income you show on your tax return will be considered.
Look for a sound home in a good neighborhood where property values are steady or rising. The home you contract to buy will be appraised. The appraised value should be close to your purchase price. If the appraised value is less than the amount you are paying, consider renegotiating your purchase contract.
The lender will use the lower amount of the purchase price or appraised value in determining the maximum loan that will be made on the property. A low appraisal means a larger down payment.
A termite inspection and roof inspection may be required by the lender which protects both you and the lender. You may be able to negotiate with the seller to pay for these inspections. If repairs are needed, the lender will require that they be completed before you can close on the loan. Such repairs are usually the obligation of the seller, but the terms of your purchase contract will prevail.
Pre Qualify for a Mortgage
Apply online for a pre qualification letter who will show you what type of financing is available and the maximum payment you will be able to afford which in turn will tell you how much house you can afford. Arranging your financing in advance will give you a strong bargaining position with a seller and will help you be realistic in your home hunting.
Shop around. Talk to several lenders. Work with someone whom you are comfortable with, who has intelligent responses to your questions and who does not use high-pressure tactics. Look for a lender who has several different loans and then ask a lot of questions.
Educate Yourself About Mortgages
Learning as much as you can about mortgage financing can save you thousands of dollars over your lifetime. Read articles, check out books from the library, attend lender seminars for new home buyers or ask your local financial institution for information.
If all attempts to finance your home fail, ask your Realtor to find properties where the seller is willing to do the financing.
Many sellers offering this type of financing are anxious to sell and might not be so fussy about a cloudy credit history and other lender concerns. Owner financing can be a great way to get your house and build credit. You can always refinance to regular mortgage in a few years.
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