When you are purchasing a home, refinancing an existing property or obtaining an equity line of credit, the following information will give you helpful hints on being prepared.
A lender has no personal feelings about you or your situation and therefore, you must look at getting a home loan as a business transaction.
Make sure all your finances are in order.
Let us start off with your credit as most loans are what is called "credit driven".
Obviously, as you have probably seen on TV or heard on the radio, or seen on the internet, the higher your credit score the better for any new loan.
Here is how it can work for you.
If you have a good credit score, say 620 or higher, you have a better chance of getting a good interest rate on a new loan. (620 is typically the minimum score required for the popular Option ARM.) If your credit score is 660 or higher, the chances of getting a really good interest rate improve.
If your credit score is below 620 you still have the ability of obtaining a new loan, however, you may have to pay a slightly higher interest rate, as a lender will consider you a greater risk. (There are many lenders willing to give a home loan to those borrowers whose credit score is below 580, but, there will be some restrictions and a higher interest rate.)
In the event you fall into this category, don't be too concerned, because, once you have obtained this new loan and you make your monthly payments on time, pay all your other reported bills in a timely manner, your credit score will go up over time and in a couple of years, you may want to refinance that loan into a better interest rate. Establish your credit.
Another item a typical lender will look at is your "debt to income" ratios, which means the combination of all your reported credit, including house payments, credit cards, car payments and any installment loans minus the amount of your gross monthly income equals your debt to income.
Most lenders prefer no more than 40%; however, many lenders will go as high as 50% to 55%. If the lender goes as high as 50% to 55%, your interest rate will probably be higher as you are considered more of a risk, even if your credit score is considered good. This means that your total outgo is between 50% and 55% of your total income each month.
Does anyone remember the old rule, back in the 1950's and 1960's that your total house payment should be no more than one week's paycheck? That rule doesn't apply any more but you really should look at your total house payment not being too much over 30% of your monthly income. That does not include your other debt.
Here is something to think about when you are going to be getting a new home loan.
Do you really need to buy a car right now? Yes, buying a car can really bump your debt to income ratios, especially with the price of cars today. This will affect how high of a loan amount you can get, therefore, when buying a house, if can affect the price you can afford to buy.
The next thing you want to be prepared for is your assets. This includes cash in the bank, retirement accounts, stocks and bonds, etc. I bring this up because, most lenders require what is called "reserves". These are funds you have on hand to pay at least 2 months of your house payment, including taxes and insurance, in the event something were to happen and you couldn't make the payment from your normal income.
Each lender is different, but you should have a least 2 months reserves available. Even if the reserves are in a retirement account, that's OK.
Keeping all of these items in mind when going for a new home loan you will protect you from being surprised during the course of the loan process.
Just remember the debt to income ratios, your credit score and assets or cash on hand and you'll be in a great position to get exactly the loan you want.
For additional information contact Patti at: www.realestateandloans4you.com
Patti Schopper has been in the real estate industry over 36 years. Patti always keeps her clients interests first. Communication is number one. You will be kept informed from the beginning to the end of the transaction. Patti is a full time professional agent and loan specialist in the Inland Empire, Southern California and specializes in first time home buyers, move-up buyers, sellers, investors and most types of loans, such as Option ARM, equity lines of credit, fully amoritized loans of all kinds and 100% financing. Patti will provide you with friendly, honest service. |
|
