Becoming Mortgage Ready
By Casey Shipley, Licensed Mortgage Broker
As a mortgage loan originator who has worked with countless first time buyers I cannot emphasis enough the importance of preparing yourself financially to become a homeowner.
Once the decision is made to purchase a home, most people want to skip immediately to the sexy part, viewing homes. Without a doubt this is the most exciting part of the process, but moving from a dead standstill to touring potential purchases skips a very important step; preparing yourself to actually buy the house of your dreams.
In real estate school they teach new real estate agents that a buyer is three things: ready, willing and able. Many, many people fulfill the first two criteria, ready and willing. It is the third factor that can pose the biggest issue. With websites devoted to displaying homes on the market,and payment calulators on each website, potential buyers are able to go online and pick out properties that they feel meet their needs and their pocketbooks. In fact, it is not uncommon for a buyer to call a real estate agent with a pre-selected list of homes they desire to see. A real estate agent, whether working on behalf of the buyer or seller, has a legal duty to the sellers that. That duty is to be as certain as possible that potential buyers are actually qualified to purchase the homes they tour. That means that the borrower must be pre-approved by a lender as credit worthy to buy a home. Many real estate agents will show a potential buyer one or two homes prior to asking for a pre-approval letter from a lender, but any successful real estate agent will require the buyer to do this before getting too deep into the showing process.
Why? Real estate agents are paid on commission. Until the buyer and seller are seated at the settlement table the real estate agent makes no money. All the gas and time consumed during a housing search are on the agent's dime. An agent doesn't make a penny until the property changes hands and the mortgage is finalized. Busy agents can't afford to show properties to people who are a question mark when it concerns their financial abiltiy.
So as excited as you might be at the prospect of purchasing your first home, your first call should be to a mortgage broker to become pre-approved. Why do I suggest a mortgage broker as opposed to your bank? Doesn't it make sense to begin where you have your bank accounts?
The difference between mortgage brokers and banks is that a bank normally has one source of money. If your financial profile does not fit the profile of their money source your pre-approval will be denied. Mortgage brokers have multiple sources of money so if your financial profile doesn't meet the criteria of one money source, there is another who may approve you. And, because a mortgage broker has several sources of money, a mortgage broker can offer highly competitive interest rates and closing costs.
The first area that the broker will look at is your credit. Since the great recession of 2008, credit rules for borrowing mortgage money have tightened considerably. With good reason. Housing almost destroyed the economy. No doubt you have heard about "bad loans" and you may even be considering purchasing a foreclosure at a bargain price that was a result of one of those loans.
Credit is made up of several components:
1) What you owe: total minimum payments and your credit balances vs your actual balance
2) Timely Payments-do you pay on time?
3) How many credit lines you use
4) Do you have outstanding legal obligations such as collections, judgments, bankruptcy proceedings or child support arrearage?
Mortgage lending today requires that most borrowers have at least three credit lines that are open and active for a minimum of twelve months. These can be credit cards, auto loans, student loans, or installment payments. There are exceptions, but this is the standard.
A credit score of 620 or above with the three credit lines will qualify you credit wise for a mortgage loan. If you score is below a 620, you will need to do some work with your credit. Future blogs will address how you can improve credit.
The second criteria that the lender will look at is your income. How much is your gross income vs how much you pay out to creditors. Typically lenders do not want to see more than 43% of your income tied up in consumer payments (what is reporting on your credit report) plus your proposed house payment.
The third important area that lenders look at when pre-approving a buyer is employment. How long have you been employed and are you likely to remain employed? In future blogs I will cover each of these area in detail.
The spring buying season is almost here...interest rates should remain low; now is an excellent time to buy a home!
So as excited as you might be at the prospect of purchasing your first home, your first call should be to a mortgage broker to become pre-approved. Why do I suggest a mortgage broker as opposed to your bank? Doesn't it make sense to begin where you have your bank accounts?
The difference between mortgage brokers and banks is that a bank normally has one source of money. If your financial profile does not fit the profile of their money source your pre-approval will be denied. Mortgage brokers have multiple sources of money so if your financial profile doesn't meet the criteria of one money source, there is another who may approve you. And, because a mortgage broker has several sources of money, a mortgage broker can offer highly competitive interest rates and closing costs.
The first area that the broker will look at is your credit. Since the great recession of 2008, credit rules for borrowing mortgage money have tightened considerably. With good reason. Housing almost destroyed the economy. No doubt you have heard about "bad loans" and you may even be considering purchasing a foreclosure at a bargain price that was a result of one of those loans.
Credit is made up of several components:
1) What you owe: total minimum payments and your credit balances vs your actual balance
2) Timely Payments-do you pay on time?
3) How many credit lines you use
4) Do you have outstanding legal obligations such as collections, judgments, bankruptcy proceedings or child support arrearage?
Mortgage lending today requires that most borrowers have at least three credit lines that are open and active for a minimum of twelve months. These can be credit cards, auto loans, student loans, or installment payments. There are exceptions, but this is the standard.
A credit score of 620 or above with the three credit lines will qualify you credit wise for a mortgage loan. If you score is below a 620, you will need to do some work with your credit. Future blogs will address how you can improve credit.
The second criteria that the lender will look at is your income. How much is your gross income vs how much you pay out to creditors. Typically lenders do not want to see more than 43% of your income tied up in consumer payments (what is reporting on your credit report) plus your proposed house payment.
The third important area that lenders look at when pre-approving a buyer is employment. How long have you been employed and are you likely to remain employed? In future blogs I will cover each of these area in detail.
The spring buying season is almost here...interest rates should remain low; now is an excellent time to buy a home!
This blog was created to be a useful source of information to potential home buyers and those who are entering the market and finding that the rules of the game have changed since the last time they purchase a home. I hope you find the information useful!
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