1.
Do you have a steady job history?
If you have been working consistently
for at least the last two years, a lender will consider this to
be steady employment. This does not mean that to be approved for
a mortgage loan, you need to have held the same job for the last
two years. In fact, job moves are looked on favorably if the result
has been equal or more pay. However, if you have been working continuously
for less than two years, this doesn't necessarily mean you won't
be approved for a mortgage loan. The important thing is to be able
to reasonably explain any gaps in employment. For example, if you
were just discharged from the military, recently finished school,
work seasonally with work gaps between seasons, were temporarily
laid off, or had an illness that prevented you from working, you
may still be able to qualify for a mortgage loan.
If
you answer yes: This means you have been working continuously
for the last two years, or if you have not, you are able to provide
a mortgage lender with reasonable explanations for any gaps in
employment. If you can demonstrate a steady level of income and
job history, the lender will have evidence of your capacity to
pay back a mortgage loan.
If you answer no: Saying "no" to a stable work history means you
have not been consistently employed over the past two years and
have not kept up a regular and even income level. You may have
been fired for cause. You might have big gaps in your job record.
Or there may have been dips in your income level that you cannot
satisfactorily explain. If this is the case, you may have to delay
borrowing money for a home until you can show that you have a
steady income and stable work history.
2.
Do you have an established and favorable credit profile?
Before
lending you money, lenders want to see a track record of debts owed
and duly repaid. Your lender will order a credit report to verify
your debts, the amount of your monthly payments, and how many months
or years you have left to pay off your debts. Credit bureaus keep
records of consumer debt and how regularly these debts are repaid.
Credit bureaus compile these reports by obtaining information from
a wide range of sources--credit card companies, banks that have
given you car loans, department stores and gasoline companies that
provide credit cards. If you have never had any credit cards and
have never borrowed money from a financial institution, you can
still establish a credit history by documenting your monthly rent
payments to current or previous landlords and your monthly payments
to utility companies for electricity, gas, water, and telephone
services. A mortgage lender can probably help you put this information
together.
You
can find out what information is in your credit file by contacting
a credit bureau. They usually are listed in the yellow pages of
your phone book under "Credit Reporting Agencies" and will provide
you with a copy of your report for free or for a nominal fee. The
major companies are Experian (formerly TRW., Inc.), CBI Equifax,
Inc., and Trans Union . Contact any of them for your credit report.
See if any information is missing or inaccurate, so you can take
steps to have the report corrected if necessary.
If
you answer yes: Saying "yes" to a good credit record means you
have a history of paying your rent and other bills on time and
will be able to prove that through a credit report or through
compiling a nontraditional credit history. Although lender credit
standards may vary, being late on a payment or having gone over
your credit limit once or twice doesn't necessarily mean you don't
have good credit--particularly if you can reasonably explain why.
But if you show a repeated pattern of not paying accounts as agreed,
it will affect your credit history. A good credit history tells
the lender that you pay your obligations on time and use credit
wisely-- important information for a lender to know when you want
to take out a mortgage loan.
If you answer no: An unfavorable credit profile may mean you do
not pay your bills on time or you currently have more credit obligations
than you have been able to handle. Information that may be considered
negative includes late payments, repossessions, accounts turned
over to a collection agency, judgments, liens, and bankruptcies.
Negative information in your credit file may lead creditors, such
as mortgage lenders, to deny you credit. If your credit report
shows that you do not have a good credit history, and the report
is accurate, now may not be the best time to apply for a mortgage
loan. Instead, you should try to improve your credit profile.
Bring your payments up to date; pay off some of your debts; and
work on paying your bills on time. Over time, you can build a
profile that shows you are a good candidate for a loan, even if
you have had serious credit problems in the past. For example,
a foreclosure on an earlier mortgage does not mean you can never
get a mortgage for another home. But most lenders prefer that
three years go by before they will consider you for a new mortgage,
and will want to know why there was a foreclosure. Similarly,
if you have declared bankruptcy, most lenders won't let you assume
a mortgage debt until at least two years after discharge of the
bankruptcy.
3.
Have you saved the money for a down payment and closing costs?
Nearly
all home buyers require a mortgage loan from a financial institution.
However, few loans are for the full purchase price of a house. Instead,
a lender will insist you contribute some portion of your own funds
(the down payment) as part of the deal. Today, buyers can pay as
little as 5 percent down. (In fact, some programs such as the Fannie
97® mortgage, require as little as 3 percent down). There are also
a number of government-sponsored loan programs, including Federal
Housing Administration (FHA), Veterans Administration (VA), and
Rural Housing Service (RHS) loans, that require little or no down
payment for qualified borrowers. Typically, however, most lenders
require some form of down payment. For a $100,000 home, a 5 percent
down payment requirement would be $5,000. You also will need to
pay a number of additional costs, called closing costs, that cover
the legal transference of a property to your name and other costs
associated with your taking out a mortgage. Closing costs generally
range from 3 percent to 6 percent of the sales price of the home.
So, if you were to buy a $100,000 house with a 5 percent ($5,000)
down payment, you could expect to pay between $3,000 and $6,000
in closing costs. Think about how much houses cost in your area
and the type of mortgage down payment your loan will require. Then
calculate the funds you have available to you for a down payment
and closing costs.
If
you answer yes: Congratulations! Saving sufficient funds for closing
costs and a down payment is usually one of the hardest parts of
being ready to buy a home. If you believe you have sufficient
funds, you are in a good position to shop for a mortgage and get
pre-qualified by a lender, so that you know how much you can borrow
based on your income and existing debt. When you do apply for
a loan, your lender will verify that you have the funds you say
you do, so be sure to be truthful about the amount you really
do have available.
If you answer no: If you do not now have at least a part of the
money saved, you may be able to enlist the aid of a relative or
a government or nonprofit agency that might give or loan you the
money. Local housing agencies often offer loan terms that include
no down payments. (Check with your state or local housing authority.
The phone numbers usually can be found in the government "blue
pages" of the phone book.) However, if this type of down payment
and closing cost assistance is not available and you have not
already saved the money for at least part of those expenses, this
probably isn't the right time for you to buy a house. Instead,
you should begin to budget some money from every pay check that
you can put into a savings account. The more consistently you
save money, the better your chances to apply for a mortgage in
the future.
4.
Can you afford monthly mortgage payments for the house you want?
Generally, the amount of your monthly mortgage payment is limited
to 28 percent of your gross monthly income. The amount of your total
monthly debt is limited to 36 percent of your gross monthly income.
Staying within these lender guidelines will give you a certain range
of monthly mortgage payments you can afford. The amount of these
payments will depend on current interest rates.
If you answer yes: If you calculate that your income and your
current debts are sufficient to allow you to afford monthly mortgage
payments for a home at a certain sales price and at a certain
interest rate, then your next step may be to get to know what
types of homes are available to you in the price range you can
afford. You may wish to visit open houses advertised in the real
estate section of your local newspaper, or contact a REALTOR®
who can show you homes in your price range. You may also want
to get pre-qualified by a mortgage lender, who can help verify
that the calculations of your buying power are in the ball park
of the amount of the money the lender will provide you for a mortgage.
If
you answer no: If after investigating various types of mortgages,
you are not happy with the mortgage amount you will qualify for,
you may need to lower your sights and simply recognize that you'll
have to buy a less expensive "starter home" or continue to rent.
You may decide to wait to apply for a mortgage until your income
increases. For example, is it possible for you to put in extra
hours on the job to build up your income? Or do you or your co-borrower,
if there is one, expect a raise in the near future? If so, you
may wait a bit to buy a house so that you can qualify for a higher
mortgage amount. In addition, if your existing debt is too high
in relation to your income, you may be able to qualify for a larger
mortgage by paying off some of this debt. Home's Value Is Key
to Total Ownership Satisfaction Jump start your understanding
of your home's value by getting a free estimated valuation. If
you're buying a home, it helps if you have an estimate of the
home's value. Together with comparable home sales, estimates of
a home's value will help you come to an appropriate bid or purchase
price. What's more, a home's value will determine the amount of
financing a lender will extend.
If you're selling a home, knowing the estimated value will help
you set an asking price and help you determine an acceptable range
of bids to consider. For most of us, our home is the most valuable
single asset we'll ever own -- it's important to know what it's
worth.
Knowing
your home's valuation is critical if you are: planning renovation
or improvement projects looking to refinance taking out an equity
loan to finance other life events, such as college tuition obtaining
the right amount of insurance coverage developing an estate plan
Obtaining an estimated valuation of your home is the first step
in determining its current worth. Estimates provide valuable raw
ingredients to move forward with investigating a home purchase
or sale. Estimates, however, should not replace the use of licensed
appraisers. Call upon the resources of a licensed appraiser during
any formal process that requires the determination of a home's
value.
To
get an estimated home valuation, use some of the free tools that
are available on the Web. Domania's Value Check requires you to
register to use it for free, but it's worth the quick effort. Home
values also can help with tax appeals and removing private mortgage
insurance. What's more, with estimated valuation tools you often
can determine potential future value of your home, as well as understand
what your possible equity position is, based on current value.
