With the current housing market being drastically short on inventory, it is more critical than ever that a homebuyer learn how to prepare for a home purchase and mortgage and be as well-positioned as possible to make an offer on a home. There are some important points to keep in mind when pursuing this:
How to prepare for a Home Purchase and Mortgage
Pre-approval is an important step in how to prepare for a home purchase and mortgage. Work with us to obtain your mortgage pre-approval. It is important that you are forthright when providing information regarding past credit history, income, and assets available (including amounts available in retirement accounts and/or potential gift funds from a relative) and you may need to provide some documentation in order to complete the pre-approval process.
KNOW YOUR MONTHLY PAYMENT COMFORT ZONE
During the pre-approval process, be sure to discuss with us the total payment that fits your budget. Many times customers can be pre-approved for much more than is comfortable for their personal financing circumstances. Knowing that information up front permits us to determine the maximum purchase price that you can pursue and remain within your financial comfort zone.
IF NEEDED, TAKE THE TIME TO WORK ON YOUR CREDIT RATING
Higher credit scores provide more mortgage program availability and also provide better loan terms to the customer. If you need to work on your scores, we can utilize software programs to determine the best course of action to take in order to increase your credit scores in the shortest amount of time. Many people think that paying off all their collections will fix their credit. Not only is that not the case, some actions taken in that manner will actually make your credit scores go down. Let us assist you in ensuring that you are not taking actions that are counterproductive to your homeownership goal.
In this market, having financial resources is critical to being able to compete against other potential buyers. Save as much of you can while you continue to look for your new home. Check into retirement accounts to see if you can borrower against them or withdraw from them in order to have more money to use toward your purchase transaction (Please Note: There may be tax implications involved in taking a withdrawal from a retirement account. Consult a tax accounting professional to discuss the ramifications of doing so). Talk with relatives to see if they are able and willing to provide gift funds to you to be used toward your home purchase. Please Note: due to anti-money laundering regulations, every penny that is used toward a home purchase, when obtaining a mortgage to do so, must be sourced and verified. Gift funds are no exception to this. Please discuss with us how the gift donor is related to you and the amount being provided before you accept and deposit the funds into your bank account. This is important because cash can typically not be sourced; therefore, if you deposit a large sum of cash in your account, there may be no feasible way to prove where the funds came from. If the funds cannot be properly sourced, they will not be considered by the Underwriter as verifiable assets and will not be permitted to be used for the transaction.
MAINTAIN JOB STABILITY
Consistency of employment and income are also very important in how to prepare for a home purchase and mortgage. Underwriters look for continuity. If you have a lot of job changes in the last 2 years with gaps in between them, an Underwriter may not feel comfortable approving your mortgage request until you have had more time on your current job. This could be anywhere from 6 mos. to a year depending upon the circumstance and the guidelines for the mortgage program being used. If you change jobs and go from a salaried position or an hourly position that was consistently 40 hours per week to a position that has variable pay (for example, a full commission position or a position that compensates you based upon an index – such as truck driver who is paid strictly upon the miles drive or number of loads hauled), an Underwriter will require that you be on the new job for 2 yrs. before an average of the variable income can be calculated and your qualifying income determined. The same is true if you go from a salaried or 40 hour per week hourly job to being self-employed. You will need 2 years of tax returns, in most cases, in order to have any of that income considered.
PERHAPS A COSIGNER WILL HELP
Perhaps a cosigner is needed. There are times when a transaction will not be approved due to limited credit, lower credit score and/or low down payment. A strong, qualified cosigner can sometimes be the difference between approval and denial of a mortgage request.
NOT QUALIFIED? – LET US HELP YOU WITH AN ACTION PLAN
If you do not qualify for a mortgage right now or do not qualify for the price point that you are interested in, we will work with you to provide advice and a plan of action so that you can work toward your goal. Contact us today to create an action plan tailored for you.