Almost all homes are purchased with a down payment and money from a bank or private lender.
How do I qualify for a loan? Lenders want you to be willing and able to pay back the money you borrow from them. In general, to pay back a loan you need to be employed or to have a steady reliable source of income. Along with that, you need to prove your willingness to repay the lender you have to have a track record of repaying other loans. You will also need some additional funds to meet the expenses of closing and any maintenance issues the lender may become aware of from the inspection and appraisal.
Can you be more specific? Lender requirements vary slightly. Some allow you to use 28% of your gross monthly income for your house payment (Principle, Interest, Taxes and Insurance) as a maximum. Others will go as high as 30%. Your total long term debt (credit cards, car payment, student loans, mortgage payment, and anything else) is usually required to be 36% to 40% of your gross monthly income.
What if I have great credit and a huge down payment? If you do have a high credit score and are putting more than 20% down, some lenders will have better interest rates and perhaps, a special loan program for you, because they feel that their risk of you defaulting is lower.
What’s my credit score? Credit reporting companies have established a scoring method to rate people who use credit. These scores range from 300-850. Over 720 is considered good for buying a home. Under 700 gets pretty iffy. The easiest way to find out your score is to talk to a competent lender. There are other online methods and you are entitled to get you free credit report once per year, but getting the FICO score is more difficult.
What’s the down payment? Money from a prospective home purchaser which assures the lender that you will be a financially responsible borrower. With a down payment of 20% or more of the purchase price, no Private Mortgage Insurance (PMI) will be required of you.
What’s PMI? A Federal Housing Authority (FHA) loan is a loan where the buyer puts as little as 3.5% down and pays a monthly insurance policy fee. The FHA runs the insurance program and covers the lender if the loan defaults. PMI is a privately funded insurance to do the same thing. Each program has advantages and disadvantages. If you are buying with less than 20% down, ask your lender about both types of loans.
What if I’m a veteran? If so you may qualify for a loan with as little as 0% down. These loans have an insurance policy handled by the Veterans Administration, and are much like FHA loans and loans with PMI.
What lender should I choose? There are several types of lenders to choose from. Banks, Credit Union, Mortgage Brokers, Mortgage Bankers, and Government Lenders are the main choices.
What about online lenders? Online lenders, brick and mortar lenders, and telephone lenders all come with their share of excellent, ethical, customer service oriented personal and also a share of the unethical and scam connected operators. All types of lenders work for the company they represent and have no fiduciary responsibility to any of their customers. The best way to choose a lender is to listen to a trusted friend or to your wisely chosen REALTOR®.
Does the REALTOR® get a kickback for referring a lender?Most states allow a mortgage lender to also hold a real estate license. Some states also allow the real estate agent to receive a fee for initiating an application. Most agents do not do this. It is extremely difficult for one person to responsibly keep track of all loan programs and interest rates and also to keep track of housing inventory and their buyer’s needs.
What should I take to the lender?
- Identification
- Social Security Number
- Last three months of bank account statements including
- Checking Accounts
- Saving Accounts
- Certificates of Deposit
- Last three months of records concerning stocks, bonds and other investment information
- Assets
- List of automobiles and approximate value
- List of other assets approximate value
- Life Insurance Policy
- List of liabilities
- Other mortgages
- Credit Card Statements
- Student Loans
- Any other debt
What type of loan should I get?