Home Buying
How Much Will It Cost?
You can borrow directly from a bank or credit union that lends money for purchasing a home, or you can use a mortgage broker to do the shopping for you. A mortgage broker usually acts as a middleman between you and the lender. A mortgage broker usually works with numerous lenders to find the right program for the borrower. A mortgage broker is usually essential if you have past credit problems, are self-employed or aren't going to put much money down on your loan, simply because of the wider range of programs available to him or her.
Can I Qualify For a Loan?
There's no doubt that getting your first mortgage can be intimidating. But keep in mind that there are literally thousands of lenders with many different programs available. If you can't qualify with one, you may with another!
Lenders will consider the following to determine if you qualify for your loan:
1. Your income. You'll need to provide copies of your two most recent paystubs and W-2s, or if you are self-employed, your tax returns (not always needed on loans for the self-employed) to verify your income. If you receive income from investments, rent, or other sources, you may have to provide documentation such as cancelled checks.
2. Your debts. The lender will check your credit report with all three major credit reporting agencies - Equifax, Experian, and Trans Union - to make sure it has a complete list of your debts. The minimum payments listed on your credit report will be used to calculate your debt ratio. Keep in mind that if you have a credit card that you use, but pay in full, your credit report may show a monthly payment that the lender will then include in calculating your debt ratio.
3. Your credit history. The lender will usually also obtain a credit score from all three credit reporting agencies. (See the Consolidated Credit Inc. publication, Make the Most of Your Credit Score for more information on credit scores). They will then look at the middle of those three scores to determine which program you qualify for. For example, if your credit scores are 650, 675 and 700, they'll use the 675 credit score to decide the rates and fees you'll pay.
4. The property. The lender will require an independent appraisal of the property to make sure it is worth the sales price. (You'll pay for the appraisal but the lender will usually order it from a list of its approved appraisers.) A survey will be conducted to make sure the property lines are correctly established and a title search will be conducted to make sure there are no liens on the property. If a flood certification shows you are in a flood zone, the lender will require you to purchase flood insurance.
