Lender Requirements To Approve You For A Loan
What The Lender Will Be Looking For ......
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Are you ready to buy a home?
When you want to buy a home, you are faced with many decisions. As a first time home buyer the first is whether you are actually ready to buy. Finding the right first home is not always easy, and getting a first time home buyer mortgage loan can be time consuming and complicated.
To help you decide if you're ready as a first time home buyer, we'll take you through the steps a mortgage lender uses to decide if you qualify for a first time home buyer loan. When you take out a loan, you sign documents that say you promise to pay back the loan.
When a mortgage lender makes you a first time home buyer loan, it has determined that there is a good likelihood that you can keep that promise. The mortgage lender knows that it does not help you or the lending institution if you are given a loan, but then, for any reason, are unable to make the loan payments each month.
To decide if you will be able to repay a first time home buyer loan, your loan officer will look at many different pieces of information about you. This process is called underwriting. This information shows how well you have repaid your debts in the past, whether you are likely to repay your debts in the future, and your ability to repay the mortgage and your current debts.
There are first time home buyer program guidelines that help a lender in looking at these pieces of information about you. But you should also remember that there is some flexibility in these first time home buyer guidelines, because everyone's financial situation is different. If you are very strong in one area, it may help balance out another area in which you aren't quite as strong.
Go through the first time home buyer questions below and test yourself. If you aren't ready to buy a new home now, you'll find we've included information that may help you qualify in the future. When you get to the end, you will have a better idea of whether this is the right time for you to buy a home, or whether you need to work on improving your credit history, paying off existing debts, or saving more money. Either way, we will be able to give you some helpful first time home buyer information.
How steady is your job history?
This is important. Having a steady job as a first time home buyer helps you to keep your promise to pay back a mortgage loan. If you have been working continuously for two years or more, you are considered to have steady employment. A lender will need to know your job history, and it will be a factor in whether you qualify for a first time home buyer loan. However, you do not have to have held the same job for two years in order to be approved for the loan. Job moves that result in equal or more pay and continue to use proven skills are a plus for you. If you have been working continuously for less than two years, the mortgage lender will look for an explanation. There may be a good reason:
• You may have been discharged recently from the military or just finished school.
• Your work may be seasonal, and you might have work gaps between seasons.
There may be other acceptable reasons why you have not been employed continuously for two years, too. For example, you may have been laid off because of a plant closing or an illness. Or you may be in a line of work in which frequent job turnover can be customary, but you have been consistently employed and have maintained a regular, consistent level of income.
If you have been fired for cause such as excessive absences, have long gaps in your employment record, or have dips in your income level that are difficult to explain, you should probably delay buying a home until you can demonstrate that you have a stable work history.
Based on the information above, give yourself a "+" if you think you have a stable work history or a "-" if you do not.
Do you pay your bills on time each month?
How you paid your bills in the past gives a lender some indication of how you can be expected to pay them in the future. When you apply for a first time home buyer loan, you will be asked to list all your debts, the amount of your monthly payment, and the number of months or years left to pay on the debts.
Your lender will order a credit report to verify the information that you give and to check on how well you have kept your promises to repay your debts. Credit reports are provided by credit reporting companies that make inquiries through a wide range of available sources of information: banks that may have given you a car loan, credit card companies, even gasoline companies and department stores that offer credit cards.
It's important to disclose all debts and any difficulty you may have had in the past in repaying these loans. It's also important not to leave out any information about money you owe. Credit reporting companies have access to a great deal of financial information about you, and they make it available to lenders who will be reviewing your first time home buyer loan.
If you have previously owned a home, and your mortgage has been foreclosed upon within the last seven years, the foreclosure will be revealed on your credit report. Having a foreclosure on your records doesn't mean you can never buy another home. Your lender will want to know the reason for the foreclosure, and most prefer that three years go by before you apply for a new mortgage.
If you have declared bankruptcy within the past ten years, that also will be revealed on your credit report, and it will be helpful for you to explain the circumstances surrounding it. Lenders usually prefer that you wait two years after discharge of the bankruptcy before assuming a new large debt like a mortgage loan. This gives you time to reestablish credit and show that you are again able to manage your financial affairs.
Sometimes credit reports are inaccurate, or they give a misleading picture of past credit problems that have since been resolved. To check the accuracy of yours, you can obtain a copy of your credit report. For a small fee or sometimes for free, you can request a copy from a "credit reporting agency". If you find any errors, you can take steps to have the report corrected. You can obtain the telephone numbers and internet links to the credit reporting agencies on our web site the Credit link in the Buy a Home section.
If your credit report shows that you do not have a good credit history, and the information reflected is correct, you should probably delay trying to buy a home and take steps to improve your credit profile.
For example, you may have too many debts, or you may pay some debts late each month. If so, you should work to bring your payments up-to-date and to payoff some of your debts. Even if your debts are current, you may not be considered a good candidate for a first time home buyer loan if you have made your monthly payment after the due date each month. After you have decreased the amount you owe and are able to show a two-year history of making payments on time, you may be ready to begin looking for a home to buy as a first time home buyer.
Give yourself a "+" if you have a good credit history or a "-" if your credit history shows some recent, unresolved problems.
Do you have a credit history?
If you have never had any credit cards or taken out a loan through a financial institution, the various credit reporting firms may not be able to issue a credit report on you. In that case, you may be able to use a "nontraditional" credit history. For example, you may be able to document that you pay your rent, telephone bills, or utility payments on time each month. You can put these records together yourself by making copies of canceled checks or showing copies of monthly bills that do not have any late charges. We will help you put this information together.
If you have a good record of paying your rent and other bills and will be able to prove that record, give yourself a "+." If you do not always pay your bills on time or have no record of your payments, give yourself a "-."
Do you have money saved for a down payment?
When you buy a home, you will need money that you have saved for a down payment and closing costs. The amount of the down payment may vary, but generally you must make a down payment that equals at least 3 percent of the purchase price. You will also need money for closing costs. These costs can be expensive, depending upon where you live. Sometimes the property seller is willing to pay part of your closing costs.
The lender will want proof that you have saved the funds that you will use for a down payment and part or all of the closing costs. If the funds are in a savings account, the lender will generally ask the financial institution to verify the amount and the length of time that the funds have been in your account. The lender wants to make sure that you are not borrowing all the money you will use for the down payment and closing costs.
Some lenders have programs to help a first time buyer. With some of these programs, you may be able to accept a gift from a relative or to borrow a portion of the money you will need for the down payment and closing costs from a local non-profit organization or government agency. With others, you may be able to get a grant or other first time home buyer funds that you will not have to repay and can use to cover some of these costs.
If you do not now have at least a portion of the money saved, this may not the right time for you to try to buy a home. Instead, it would be a good idea to open a savings account and begin putting away some funds from every paycheck. The longer you have accounts and the longer and more consistently you have been able to save money, the better you will look to lenders when you are ready to apply for a mortgage in the future. You may be eligible for a first time home buyer program grant This may make it easier for you to get a first time home buyer loan than you normally would be able to saving for the cash on your own.
Based on the information above, give yourself a "+" if you have money saved for your down payment and closing costs. Give yourself a "-" if you do not have money saved right now.
Can you afford to pay a mortgage each month?
If you pay rent each month, you may be prepared to make monthly mortgage payments. The amount of your monthly payment depends upon the amount you borrow, the interest rate, and the repayment period or "term." The shorter the term, the higher your monthly payment. For that reason, most first time home buyers repay their mortgage over the longest term possible, usually 30 years. We can pre-qualify you over the telephone for our various programs at no charge to you.How to calculate your payment.
The amount of your mortgage payment will depend on how much you borrow, the term (repayment period) of the loan, and the interest rate. If you know how much you need to borrow (the purchase price minus your down payment), and what the interest rate will be, you can call us at (817) 238-0000 and we can pre-qualify your over the telephone at no charge to you, or you can fill out an application on our secure server by clinking this link. You may use the Payment Calculator in the Buying a Home section to find out what your monthly payment will be with a standard 30 year, fixed rate mortgage. Note that this calculator not only includes only principal and interest payments, but also estimates property taxes and insurance.
How does a lender determine the amount of the loan you may receive?
When you first approach lenders about financing a first time home buyer loan for you, they will use two commonly accepted guidelines to help determine your ability to make mortgage payments. These first time home buyer guidelines are a starting point for evaluating your ability to make the payments on the proposed loan. So your lender will look closely at your individual financial situation to determine if more flexible guidelines are appropriate for you. You can visit our web site and use the Qualifying Calculator in the Buying a Home section to find out what your monthly payment will be
1. Your monthly housing costs (including mortgage payments, property taxes, homeowner and mortgage insurance, and home owner's fees) should total no more than 29 percent of your monthly gross (before taxes) income. In addition to your regular pay, your income can include funds you receive from overtime work, a part-time job or second job; retirement, VA, and Social Security benefits; disability; welfare and unemployment benefits; alimony; and child support.
2. Your monthly housing costs plus other long-term debts such as payments on car loans, student loans, or other installment debt (debts with more than ten months left to repay) should total no more than 41 percent of your monthly gross income.
A first time home buyer should not have a difficult time qualifying because the proposed monthly housing cost and the proposed total monthly debts are lower than the maximum guidelines. If a first time home buyer has a decent credit history and some money saved for a down payment, most lenders would consider this borrower a good potential customer. The borrower is not attempting to buy a house that would strap him or her financially. This individual gives every indication of being able to follow through on the commitment to repay this mortgage.
However, if the proposed monthly housing cost and the proposed total monthly debts are higher than the maximum guidelines a first time home buyer would probably not be able to qualify for a mortgage loan at this time-even if they have a good credit history. Even if the lender is very flexible and willing to use more generous guidelines, a first time home buyer might have trouble qualifying because their proposed monthly debts are well above the range most lenders consider reasonable. In this case, the family should concentrate on paying off some of their credit cards and getting their monthly expenses to a lower level for a period of time before looking to buy a home for the first time.
Give yourself a "+" if you think your family's monthly income is enough to pay both your current monthly expenses and the housing payment you would owe if you bought a home. Give yourself a "-" if you do not think you would qualify at this time as a first time home buyer.
Have you been turned down for a mortgage?
If you have tried to buy a home, but were unable to get approved for a mortgage, you should try to find out why the lender did not want to make the loan. Based on the information above, you may already have figured out why you did not get a loan. Maybe you did not have a steady work history, or you tried to buy a house that was too expensive for your income, or your debt level is too high. If you are unable to figure out why you were turned down, you should ask the lending institution for an explanation. You should also ask what steps you can take so that you can qualify in the future as a first time home buyer.
You're ready to buy a home. What do you do first?
If you have read all the information above, you may be ready to begin the process of buying a home as a first time home buyer. check out our web site and use the Special Listings section to view some of our current inventory, or contact us at (817) 238-0000 so that we may show you some of our remodeled homes in your area. If you find one of our homes that you like we can pre-qualify you over the telephone at no charge to determine which of our programs might be the best for your needs.
If you are not sure what you should do?
If you took this test and received a couple of minuses, or you weren't sure about some the questions, don't be discouraged. You took the first step! The next step you may wish to take to put your family on the path to home ownership is to work with us. We are willing to work on a long term basis if necessary to assist you in obtaining your first home.
Owning your own home may seem out of reach, but you can change that over time. Even if you know you cannot qualify now for a first time home buyer loan-- or even six months from now -- there may be a way you can work toward this important goal in the future. Nobody ever said becoming a first time home owner was easy. It's difficult, but it's also rewarding. It can be worth sacrificing and planning over a long period of time to achieve it.
Special first time home buyer programs may allow you to accept a gift from a relative or to borrow a portion of the money you will need for the down payment and closing costs from a qualified organization. If you do not qualify for some of the government based programs our company also offers first time home buyer assistance programs.
First Time Home Buyer programs help more Americans achieve home ownership. One way they do this is by providing objective information that makes the process of getting a mortgage less confusing. If we can be of any assistance please feel free to contact us at:
Alan B. Cash - Real Estate Direct at (817) 238-0000 or by E-Mail.
