Are you fed up with renting? Tired of dealing with landlords? Then it is time to use the services of an experienced real estate agent to find you a home. For most people, buying a home is the largest purchase they will make in their lifetime. Here are some factors to consider when making this critical financial decision.
Here are some of the many benefits owning a home offers:
- Pride of ownership
- Ability to build equity
- Potential for interest deductions*
- Owning can cost the same as renting
* Consult a tax advisor regarding tax deductibility
One of the most important steps to purchasing a home is obtaining home financing.
Here are some basics to this process:
Contact a lender EARLY
- Lenders can pre-qualify you with no cost or obligation
- This helps determine your buying power…pre-qualification takes just a few minutes and can save you time when home shopping
Learn about financing options available to you
- Ask your mortgage consultant questions
Gather necessary paperwork
- Ask your mortgage consultant what documents are needed to process your loan
- Provide all information as quickly as possible
Top Factors Lenders consider during the approval process
- Credit History
- Loan-to-Value
- Assets
- Debt-to-Income Ratio
- Employment/Income
- Property
- Loan Program
Credit History
The borrower’s entire credit profile is considered
Credit Report is obtained from all three bureaus
Potential Negative Credit
Late payments
Bankruptcy, foreclosure, public records, etc
Consideration for Negative Credit
Reason
Frequency
Time since occurrence
Alternative Credit (no or limited credit history)
Utility payments
Unreported accounts
Loan-to-Value
Is the relationship between the mortgage amount and the sales price of the property. The LTV determines the amount that will be financed by the lender. Typically, LTV’s over 80% require Private Mortgage Insurance (PMI) which is included in the monthly mortgage payment
Assets
Enough funds to cover your down payment, closing costs, pre-paids and reserves will need to be verified.
Down payment
As low as 0 or 3%
Closing Costs and Prepaid Expenses
Expenses to close the loan and set up the escrow account
Sources for down payment, closing costs and reserves:
Savings accounts, certificates of deposit or other savings
Sale of stocks and/or bonds
Gifts from relatives, employers, public agencies, or non profits
Loans backed by assets (401K accounts, cash value life insurance, or other real estate)
Sale of existing home
Debt-to-income Ratio
Lenders calculate the borrower’s maximum mortgage payment based on the verified monthly income.
Housing Debt Ratio Calculation:
House payment = Housing Debt Ratio %
Monthly income
Total Debt Ratio Calculation
House payment + All other Debts
Total debts/monthly income = Total Debt Ratio%
Employment Income
The lender will verify past and present employment and income history
- Pays stubs
- Tax returns
- W-2s
- 1099s
- Other legal documents
Property
The property you purchase will become collateral to secure the mortgage with the lender. To ensure both you and the lender are making a sound investment, various inspections may be required:
- Appraisal
- Home Inspections
- Termite/Pest Inspection
- Structural Inspection
- Title Search
- Survey
Loan Programs
Various loan programs are available with flexible loan terms:
- Fixed Rate (consistent monthly payments)
- Adjustable rate (payment changes)
- Balloon mortgage (amortized over long period; lump sum balance due and the end of the term)
