Unless you find yourself in the rare situation of having a few hundred thousand dollars laying around (or stuffed under your mattress), you're going to have to take out a mortgage if you want to purchase a house. There just isn't a way around it. So here's some tips for getting the process started, or as we call it in the mortgage biz, "getting pre-qualified."
The first thing you are going to need to do is make sure all of your finances are in order. If managed early (and correctly), this can help so there won't be any inconvenient roadblocks at the last minute that might prevent you from buying your dream home.
Long story short, lenders are going to look at a few specific things before they give you the green light to go shopping for your first mansion. Here they are:
1. Your credit history. Pretty much the first thing the banks will do when they see your name is pull a copy of your credit report and check it very thoroughly. Banks do this because they want to get a clear picture of how you pay your bills, how often, and basically what kind of borrower you are.
2. Do you pay your bills on time? Do you habitually pay them late? How many different accounts do you have open? How many cards do you have? What are your credit limits for each account and what are your current balances? Have you ever declared bankruptcy? ETC, ETC, ETC.
Basically, lenders are going to want answers to these questions before they make the all-important decision to lend you their money. But don't fret if you have a late payment here or there, its not the end of the world. Lenders are more concerned about the frequency in which the late payments were made. The more late payments, the greater the risk, and vice versa.
3. Your debt-to-income ratio. You may have heard of this, and while ratio's may not be your bag, it's really not too difficult to figure out. This term basically refers to the amount of money you make compared to how much money you are obligated to spend each month (on things like car payments, insurance, cell phone bills, etc). If your debt is too high in relation to how much you make, a lender may decline to offer you a mortgage, or they may be wary about how much money they lend.
4. You should also not be surprised if the lender requests you to provide proof of your employment and income. In most cases a couple months worth of recent pay stubs suffice. Even then, the lender may still want to verify that you are indeed making as much as you claim to be. If you have only been at your present job for a year or two they may require proof of employment from your previous employer as well. If you were in school before that, they may request a copy of your transcript.
5. One more large concern for lenders when considering qualifying you for a loan is how much cash you have on hand (or in your checking/savings account). Don't be surprised if you are asked for copies of your recent bank statements and retirement fund balances, as well as any stocks, bonds, or other investments you may have.
This is done because the lender wants to make absolutely certain you have enough cash in your reserves to cover the down payment and closing costs without wiping yourself out.
Overall this may seem a little invasive, but don't worry. Due to the subprime crisis and all the fraud associate with the industry over the last decade, lenders are having to be increasingly stringent when deciding who they lend money to. If done correctly, you can get lined up and put in a great house that meets your financial needs and demands!
As always, if you have any questions or need to get qualified yourself, don't hesitate to give me a call (817-527-3164) or shoot me an email (mpate@wewalkyouhome.com)! I'd love to help you out!
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