What Can You Afford?
The
first step in
becoming a
first-time home
owner is
understanding what
you can afford. This
is an essential part
of the home-buying
process.
You can be pre-qualified for a home purchase loan over the phone simply by disclosing some basic information about your income and credit history. If you have not already selected a Bank or Mortgage Broker, I can provide you with a list of Mortgage Professionals that I have used in the past that are a pleasure to work with and will gladly review your specific home purchase options with you either on the phone or in person and let you know in a matter of minutes your maximum home purchase price based on your FICO score and income (subject to verification upon formal loan application of course).
These
Mortgage
Professionals will
bend over backwards
to find a home
purchase loan that
is right for you and
keep you and your
Buyer Agent
informed regarding
the loan approval
and closing process
along the way when
you find a home you
want to buy.
Your Credit Report
Because
your FICO Score
determines not only
your ability to
qualify for a loan,
but also the
interest rate that
the lender will
charge, it is
imperative that your
credit report be
accurate and up to
date.
The dispute process to resolve and discrepancies regarding your credit history (if there are errors contained on your report) can take several weeks to resolve, so it is highly recommended that you obtain a current credit report and peruse the details thoroughly.
Your report will include some very important information, including the following:- Outstanding loans including type of loan, payment history and balance
- Public records regarding employment and delinquent accounts
- Foreclosures and bankruptcies
- Recent credit inquiries
Pay close attention
to your credit
history, especially
in the case of
negative comments,
which can remain on
your report for
seven years. Dispute
any discrepancies
with your creditors
to ensure that your
credit report is as
current and accurate
as possible. As I
said before,
disputes will take
time, so if you
decide to submit a
dispute online
through an agency
such as Experian or
Equifax, be sure to
follow up with your
creditors as well to
expedite the
process.
Analyze Your Income
vs. Debt
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The U.S. Housing
Department and
Ginnie Mae offer a
great
tool
to help you
calculate how much
home you can afford
based on several
factors, including
gross income and
outstanding debt.
Your Expenses
Sit
down and create an
accurate estimate of
your monthly
expenses. Include
every detail right
down to the amount
you spend each month
for gas, food and
monthly utilities to
ensure you have an
accurate number to
compare with your
gross income, and
the information you
gather from the
credit report.
Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.
There is generally a debt limit associated with each type of loan, such as a 28/36 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.
Typically conventional loans have a qualifying ratio of 28/36. Usually an FHA loan will allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner's association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.
For example:
With a 28/36 qualifying ratio:
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 qualifying ratio:
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
Click Here to Calculate Income Requirements to qualify for a specific loan amount.
Know Your Rights as Home Buyer/Owner
- The Fair Housing Act is in place to protect home buyers from discrimination, giving everyone equal access to buying the home they want.
- Understand your rights in the Settlement Process.
- Understand each and every one of your rights as a borrower. For example, you have the right to shop for the best loan for you and compare the charges of different mortgage brokers and lenders, as well as be informed about the total cost of your loan including the interest rate, points and other fees. This comes straight from the Real Estate Settlement Procedures ACT.
- Research all aspects of predatory lending, taking extra care to check references before you hire any real estate professionals. Here are some additional local resources by state for information on loan fraud and how to avoid it.
Shopping For A Loan
Using a Mortgage Calculator to determine your estimated monthly principal and interest payments and how various interest rates affects your payments, as well as the length of the loan (e.g. 15, 20 or 30 years). Prior knowledge of how the dynamics of home financing works will help you research your home mortgage options before sitting down with a Mortgage Broker to apply for a loan.
HUD has a great resource for advice on shopping and comparing mortgages. Also, here is an online resource for shopping and comparing banking services such as credit cards, homeowners insurance and mortgages.
Home Buying Programs
In addition to Federal Housing Administration loans, helping first-time home owners apply for loans with lower down payments and low closing costs for qualified buyers. Also check the HUD's resource for home buying programs in Georgia.
