Will I Qualify For A Home Loan
Will I qualify for a home loan? Qualifying for a mortgage can be one of most exciting moments for anyone, especially if it is your first time. The very first thing that you must remember is that all lenders want to see integrity, that being your CREDIT REPORT. Although this can be scary, especially with the financial mistakes that we have made in the past. The best thing to do, especially if you have a lot of credit card debt, or other loans you may have to pay, make sure to establish a repayment plan with your creditors. As soon as you start thinking of buying a home, make some time to go visit a mortgage lending company. Even though you do not get approved, they can help put you on the right path as to what steps are necessary in order for you to take so that you can get your credit score up and you can get approved for that loan you need to purchase a home!
While you are working to build your credit score, the next thing you want to make sure is to have a job in order to show that you have income and stability. Mortgage lenders will be asking for your 2 most recent IRS W-2 forms, your gross annual income, and a pay stub of your last 30 days of employment. Remember job hunting may lead to some lenders being more lenient, just make sure to prove that you have uninterrupted income.
The next thing that is necessary to remember is the Debt to Income ratio. At first this might sound confusing, but all it is- the amount of money that you owe over the amount of money that you make each month. For example, if my monthly expenses are 1500$ and I make $4000 a month (1500/4000), my debt to income ratio would be .375 which is 37.5%. With that in mind remember that all mortgage companies like for you income to debt ratio to be below 40%.
Now that we understand the important factors what you must know when it comes to applying for a home mortgage, you must also take into account the Loan To Vale Ratio (LTV) and make sure you have the money necessary to have someone appraise the property.
Loan to Value is the amount that you are buying the home over the amount that the house appraises for. So if I am wanting to buy a home for 150,000/200,000(is what it is appraised for) my LTV would be 75%. Remember, the more cash you put the down, the lower your LTV becomes. If the LTV is higher than 80%, than interest rates go up, and they will require you to get PMI (private mortgage insurance), which will add more to the cost. THE KEY THING TO REMEMBER HERE IS THAT, A PORFOLIO LENDER, WILL FELL COMFORTABLE WITH A HIGHER DEBT TO INCOME RATIO IF YOUR LTV IS LOW BECAUSE YOU MADE A BIG CASH PAYMENT!
As for the appraisal, you are looking to spending about $500-$1000.
Another thing to remember is the value of having cash reserves. Having at least 2-3 months to cover your living expenses. (Typically if you have a LTV that is low they will reduce your cash reserve requirements.)
Also, things to stay away from are: quick deposits, saying you don’t have any credit cards open, hidden liabilities, or several lines of credit opened.
Last but not least, you can always make a down payment with stocks, or sales on other assets. Make sure all of your expenses do not exceed 40-45% of your monthly income, and a down payment of 25% is really good.
Hopefully this has provided you with the information necessary to make take that first step in applying and qualifying for a home mortgage. Lastly, Seek sympathetic lenders! They are called B paper lenders.