Disclaimer: First, I would like to say that everyone’s home buying experience is different. So, when considering my advice, please remember that you still have to use your own judgment and common sense in some decisions.
For the past four years, I have been trying to purchase a home. The first two years were difficult; because every time I thought the time was right something crazy would happen. Over the past 4 years, I have learned a lot about the homebuying process and about myself. Because I have learned so much, I want to pass on what I have learned to others. I will do this story in segments, because the process is so detailed and there is so much I want to share.
Let’s Get Started!
So, you want to buy a home. What’s the first thing to consider? If you answered your budget, you are correct. You need to find out how much home you can afford so that you won’t get your feelings hurt by the bank when they approve you for a lower amount than you have been anticipating. Several factors come into play when determining how much home you can afford. Before you go to a bank for prequalification, it is a good idea to go over your debt to income ratio. Figure out how much you owe. Are there any negative items on your credit report that could hinder your loan amount, qualification for a loan, and a reasonable interest rate?
Because the economy has been through a whirlwind of uncertainty, the banking industry has changed several qualifications for loans and the loan approval process. These changes are continuously happening. So once you start the process of applying for a loan, be sure to keep up with the news. When applying for a loan, a credit score of roughly 620 is good at many banks. Strive for higher, but that is the minimum that you need to have. To get a good loan, you should strive for 650 and higher, but if you are not at that level don’t give up. You can still get a loan.
Your score is not the only thing that determines your loan approval. Your credit history and last full year of activity is important as well. It’s kind of like trying to get an all American scholarship for being good at several things but not perfect at any. You score may not be perfect, but if you pay your bills on time for the consecutive year prior to applying for a loan, this helps your chances of getting approved. For instance, a person with a 620 middle score, low balances, and on time payments can get approved for a loan.
Here goes a good checklist that could help you out before and during the pre-qualification and application process:
1. Pay all bills on time, no matter what it takes. DO NOT BE LATE ON ANY BILLS THAT ARE REPORTED TO CREDIT BUREAUS. Any late payments will more than likely shut you out of getting qualified for a loan.
2. Keep documentation, emails, EVERYTHING that relates to bills that you have paid off. If you paid off anything that went to collections, keep everything related to that bill because the bank will ask you for documentation proving that you have paid off the debt.
3. PAY OFF ALL ITEMS IN COLLECTIONS. This will help you. If you cannot pay things off, set up arrangements and pay the debt(s) down. This is critical for securing a home loan. Banks are really stringent right now and are trying to protect themselves. They look at debt in collections as an indication of whether or not you will pay your mortgage of quickly foreclose…and banks do not want potential foreclosures.
4. Gather bank statements from at least the last 3 months, and continue to keep the most up-to-date statements handy because you will need them throughout the process.
5. Be mindful of what is on your bank statement(s). Do not acquire any overdrafts during the year you are searching for a home. Banks look at your overdrafts as a major negative.
6. Keep up with 3 -5 months of paystubs. The bank will ask for them as proof of employment. Also, keep all current and new paystubs handy. The bank will ask for those throughout the process to ensure that you are still employed.
7. Have your identification card and social security card available. You will have to provide a copy of these to the bank.
8. Keep any information regarding savings accounts, IRAs, retirement funds, 401Ks, and any accounts that you have available, because the banks will request the information.
The moral of this is to understand that anything about you will be fully disclosed once you go through the loan process. So, before you even get pre-approval, make sure your business is in order. Banks look at everything these days, because they have to protect themselves after all that has happened in this economy. It is better to be prepared before you start the process than going through the pain and agony of the loan process all to find out you can’t get qualified.
Stay tuned for more information soon.
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