THE INS AND OUTS OF MORTGAGE QUALIFYING IN TODAY’S MARKET
You’re finally tired of paying rent and giving someone else the benefit of your hard-earned cash. You’re thinking of buying a house – a place to call your own!! How to you go about qualifying for that purchase?
Here are the basics needed to prepare for that big step:
- CREDIT SCORE: Know your current credit score. All lenders will pull what is called a tri-merge credit report (1 report containing all 3 of the national credit agencies; Equifax, Experian, and TransUnion). Why 3 agencies? Each agency has its own system of calculating credit scores and not all credit is reported to all 3 of the agencies. Most loan programs will use the middle score for qualifying purposes and most lenders require a 620 score or better. There are lenders that will do lower scores with compensating factors, and there are lenders who require higher scores. So call around and ask.
- CREDIT HISTORY: The credit score is only the first part of your credit to be reviewed and considered. The credit report reflects how you pay your obligations (ie, do you pay on time, do you pay late, how often have you paid late, do you have open or paid collections, judgments, or possibly a previous bankruptcy, do you max out your credit cards and pay only the minimum). All this information is on your credit report and makes an impact in loan approval. Remember everyone is entitled to 1 free credit report a year from each of the national agencies. Your credit is your responsibility – stay informed and review your credit. https://www.annualcreditreport.com
- INCOME: What type of income do you earn and how long have you been earning it? Unless you are a recent college graduate and have a new job in your chosen career field – most loan programs require 24 months of employment history that can be verified. You don’t need to be on the same job for 24 months, but you need to have a stable employment history. Income can be from a regular job paying wages from an employer who withholds taxes and issues you a W2 (not cash under the table); Self-Employed Income (keep in mind most lenders and programs require 2 consecutive years of filed Federal Tax Returns in the same business and same location); Disability; Social Security; Retirement; and Child Support. These are just a few, check with your lender for qualifying income sources.
- DEBTS: Any and all obligations you are responsible for need to be disclosed on your loan application – not just those reporting on the credit report. Don’t forget about any new debt you may have recently acquired that hasn’t had time to report to the credit bureaus; or child support payments, etc. Student Loans are big issue these days – even if your loans are deferred, most loan programs require either a 1% or 2% calculation of the balance of each loan counted as a monthly obligation. Talk to your loan officer if you have student loans to help know the best way to handle these. If you are making payments, are they IBR (income based repayment) or fixed…it makes a difference now.
- ASSETS: Any and all assets need to be disclosed to your loan officer. These include bank accounts (checking and savings), retirement accounts, investment accounts. Even if you are applying for a zero-down loan and your closing costs are either financed into your loan or paid by the seller – many loan programs want to see you have a least 1-2 months reserves. Reserves are the amount of your anticipated new house payment (with taxes and insurance included). This shows the lender that you aren’t living paycheck to paycheck, that you have money to fall back on to make a house payment or two should the need arise (like missed work due to sick time, etc).
These are just a few of the important things you need to know and think about as you are considering buying a home and wanting to get pre-qualified with a lender. Every person is unique and has different circumstances. Don’t be afraid to visit with a loan officer, either in person or over the phone. And also go to http://www.consumerfinance.gov/know-before-you-owe The CFPB’s mortgage initiative is designed to help consumers understand their loan options, shop for the mortgage that’s best for them, and avoid costly surprises at the closing table. Knowing the Ins and Outs of Mortgage Qualifying in Today’s Market will help you be better prepared to take that big step to homeownership!!!
Traci Ramirez, President
TRI-COUNTY MORTGAGE, LLC
920 Live Oak Drive
Inez, TX 77968
844-865-4200 Toll Free Office
844-269-8440 Toll Free Fax