It’s a different world out there. How can one feel confident purchasing a home when an increasing number of banks are closing their doors or filing for bankruptcy? How can one feel comfortable purchasing a home when it is said that so many loan officers put their clients in adjustable mortgages and they are now losing their homes because of it? Let’s not forget the number of defaults and foreclosures rising. How can one feel motivated to invest in a home when lending guidelines are becoming stricter (as a result making it harder to qualify for a loan)? Last but no least, if an individual did want to invest in a home, given that lending guidelines are stricter, how can one qualify to buy a home? Let’s explore your possibilities and options.
How can one feel confident purchasing a home when an increasing number of banks are closing their doors or filing for bankruptcy?
Great question, it is tough to overlook this fact. But how can you, as a consumer, feel more confident about purchasing a home? Well, using a lender that happens to be a brokerage firm (An individual or company that shops around with different banks to provide the best financial terms for their clients) provides a lot less stress and headache for you. They do the work for you and give you the numbers. You, as the client, can accept, reject, or go somewhere else.
Purchasing a home with a down payment will definitely help with your home purchasing experience. The larger your down payment, the better your interest rate and terms, and banks will become more competitive to make the loan. A good down payment is about 5% of the homes value. A real good down payment is anywhere from 10% and up.
FHA loan limits have increased which is definitely to your advantage. To check the FHA limit in your location visit www.fhaloanlimits.com. Since FHA loans limits have increased, this will allow low to moderate income to qualify for homes without making a large down payment. The down payment required is 3% and that can come from a family member or gift.
How can one feel comfortable purchasing a home when it is said that so many loan officers put their clients in adjustable mortgages and they are now losing their homes because of it?
Once again, another great question. Things like this give lenders and realtors a bad reputation. So how do you go about choosing a loan officer? It’s always great to go off a referral from a friend, family member, and even a trusted realtor.
Another way that can help with choosing a loan officer is to go based on his or her years in the business. A good loan officer will be knowledgeable about the programs that are offered. You can check the Better Business Bureau, Rip-off report on the company, or individual loan officer name, to see if there are any pending lawsuits, poor business practices or anything floating around. You could also do a Google Search on the company and/or loan officer’s name in quotes to see if any bad articles or information is floating around. Be wary of a loan officer that promises the world to you. An experienced loan officer will under promise and over deliver.
How can one feel motivated to invest in a home when lending guidelines are becoming stricter?
This depends entirely up to you as the buyer. If you read the other article, “Is Now the Time to Buy Real Estate,” then hopefully you realize that now, or in the near future, is the time to look into, or at least consider, investing in real estate. Prices are coming down and there is reason to believe that prices will continue to drop. Not to mention interest rates are low, and more in your favor.
Now let’s address the stricter guidelines part. What banks want to see before they lend you money is they want to verify your income. Those 100% stated loan programs are in the past. Banks want you to provide a down payment of at least 5% (3% if it’s a FHA loan program), verify your income, assets, and would generally love to see a credit score of 680 or above (a little below 680 will work but your down payment and yearly income has to meet their standards). If it is a FHA loan program, you can probably still qualify with a credit score as low as 540 given the condition that your income meets the banks standards. What do we mean by your income must meet the banks standards? Lets say combined you and your spouse make $10,000 a month. 33% to 40% of you and your spouse combined monthly income may be used toward your mortgage payment ($3,300 -$4,000). In other words, banks do not want to see more than %40 of your combined monthly income going towards your mortgage, and they will want to see your paystubs for 2 to 3 months to verify how much house you can afford.
How can one qualify to buy a home?
We addressed a little bit on how to qualify and what banks are looking for in general. Now let’s say you would like to improve your credit score to better prepare yourself to obtain a more favorable loan program whenever you are ready to invest in real estate. Here are some tips on improving your credit score.
Pay your bills on time
Delinquent payments can have a major negative impact on your score and the longer you pay your bills on time, the better your score. For example, someone with an average credit rating of 707 can raise their score by as much as 20 points by paying all their bills on time for one month.
Keep balances low on credit cards
High outstanding debt can affect your score. Maxing out your credit cards could lower your average score by as much as 70 points.
Don’t open a number of new credit cards that you don’t need
New accounts will lower your average account age, which could actually lower your score by up to 10 points. In addition when you apply for new credit, that is a credit inquiry and too many inquiries can have an affect to your score. A general rule is the less inquiries you have on your credit report, the more it can influence your credit score to increase.
Have credit cards – but manage them responsibly
In general, having credit cards and installment loans (and making timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
Closing an account doesn’t make it go away
A closed account will still show up on your credit report and may be factored into the score.
Saving money for a down payment will definitely help you to qualify for a loan and will help make your home more affordable. For some, saving for a down payment is easier said than done. In the article 6 Tips How to Profit In a Declining Economy, specifically on tip #6, some money saving tips are listed. In addition here are some other websites you can check out to that talk about, and give tips on saving money.
For those who want to get creative with your home purchasing. You can find homes for sale that say “Owner Will Finance” or simply ask the owner if he or she is willing to do seller financing. If you have any questions about what seller financing is, you can visit the FAQ section, or read the Seller Finance Solution for more information.
Conclusion
We hope that you found this article informative and helpful. If you have any questions please feel free to contact us or e-mail. Thank you and allow us to earn your trust.
www.hachefinancial.com
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