PREPARE TO BUY A HOME
Planning to buy a home in the near future? The sooner you get your money situation in shape, the easier it'll be to take on a mortgage loan. Here's how you can prepare your credit and finances for a future home purchase.
Determine how much you can afford. Figure out how much house can you afford? Lenders are happy to lend you as much as your debt load allows. But will that amount make you house poor? Ask yourself, how much house do I really want to afford? Lenders look for a total debt load of no more than 43% of your gross monthly income (called the debt-to-income ratio). This figure includes your future mortgage and any other debts, such as a car loan, student loan, or revolving credit cards. There are plenty of calculators on the web to help you determine what you can afford. If you’re pushing the limits, start reducing your debt-to-income ratio now. If you don't feel like doing all that math, we will happily set you up with reputable lender.
Use our home search page to get a detailed look at the market. It’ll provide perspective on the types of properties for sale and what sellers are asking for. Seeing exactly how much homes cost will help you determine how much you can actually afford. And with the pre-qualification letter you will get from your lender,
you will be all set to start looking. If homes in your desired neighborhood are outside your price range, you can delay buying until you save more money, downsize the type of home you’re looking to buy, or search in a different neighborhood. There is no concrete answer as everyone's circumstances are different. You can of course call us. We will sit down with you
and go over your very specific options.
Make sure you have several credit lines : The most popular forms of financing are FHA, Conventional and VA. Conventional loans require at least 3 credit lines (any combination of credit cards, student loans, car loans, and so on) that have been active within the past 12-24 months. FHA loans require 2 credit lines. It’s fine to have more, but if you have fewer, you won’t qualify for a mortgage. If you need to open additional credit lines, always go for the major credit card like a Visa or a MasterCard. ( No store credit cards if you can help it ) At least 8 months before you apply for a mortgage use the cards for items you would buy anyway. Never carry a balance of more than 25 percent of your allowed credit limit. If possible pay it off in full every time you get your bill. In this way we can show lenders that we are responsible.
Avoid opening new credit lines and stop using credit for the moment: Once you’re 5 months away from applying for a mortgage, do not open any new credit lines, as this can temporarily lower your score. How much? As much as 10%.
That can be the difference in qualifying or not. In the excitement of getting your new home, some people rush out to charge new appliances or furniture before closing. Some even go as far as to get a get a new car. That's a BIG mistake, because even if you have a home under contract ( Tied up ), having a debt utilization ratio above 30 percent right before closing could disqualify your loan. Unless you’re gonna pay cash, have patience for your new furniture until after your loan is closed. Also hold off on getting a car loan, as car financing tends to be more lenient than mortgage criteria. Trust me... Don't do it!! Those of you that have credit limits under $1000.00 per card are especially cautioned as it does not take much to run up those cards.
Documents needed for a Home loan
To help prepare for your home loan, it necessary to prove you are a good credit risk. To do this requires you provide documentation. The below list is just the beginning of what a lender will ask for. So before you contact a lender, at the very least, have these documents ready to send them. Use this checklist to organize your paperwork before you contact a lender. It may be a boring task today, but it’s better than a stressful situation tomorrow.
You may be asked for additional documentation, but having these documents will surely speed up your application. Of course, the best way to avoid any delays during the application process is to get preapproved. You’ll still need to gather these documents for the preapproval process, so set aside a couple of hours and get it over with.
TIP – Make sure you keep a copy of EVERY document a lender ask for on a thumb drive or in free cloud storage like Google Drive. The reason? Lenders will always be asking for documents. Some docs more than once! If you have a copy of everything handy, things will go much faster.
W2 earning statements or 1099 DIV income statements for the last two years
Federal tax returns for the last two years
Bank statements for the last three months – showing a balance greater than or equal to the amount you’ll need for the down payment. ( Lender will tell you how much )
Recent paycheck stubs
Proof of other income, such as Tips, Child Support, Disability, Retirement, Social Security payments, etc.
Proof of investment income, if any.