Whether you want to purchase a home with an FHA loan, conventional mortgage or VA loan, there are a few measures to take before the process starts.
Lending regulations are stricter now than they were in the past. For example, some lenders will only approve a mortgage application if a borrower has a 20 percent down payment even if they have an excellent credit score and solid income. This is because many mortgage insurers won’t back loans unless borrowers front this cash and reduce the risk involved.
In fact, in the wake of the housing market collapse, mortgage insurers flagged markets in an estimated 9,600 zip codes spanning 34 states, saying they would not insure certain types of home loans in these areas.
However, in an effort to curb these issues, a number of industry professionals recently traveled to Washington, D.C., to lobby members of Congress on potential changes that could benefit the housing market. This includes the Home Construction Lending Regulatory Improvement Act, which would make it easier for home builders to obtain lines of credit.
As it currently is, these experts claim strict standards are hurting the recovery by restricting access to credit for both builders and buyers. This affects home buying and home building activity, as many of these borrowers would have qualified in the past. However, until these changes occur, it’s important to be prepared before submitting your loan application.
“Buying a home is the single largest investment that most people will make in their lifetime,” says American Bankers Association president and CEO Frank Keating. “An honest evaluation of your finances and thorough planning for a mortgage are essential to making a wise buying decision.”
Start collecting your financial documents
A thorough review of your finances will make it easier for lenders to determine your financial standing. It can also give you an idea of how much of a mortgage you can afford. With this in mind, you can start to find homes in your price range.
There are a number of costs that go into buying a home, but you should also account for other financial obligations you already have. These include:
• Car payments
• Credit card debt
• Living expenses
• Student loans
Aim to keep all of these expenses plus your potential mortgage costs to less than 40 percent of your monthly income. Additional documents a lender will likely ask to see include:
• Tax records
• Bank statements
• Pay stubs
Your credit history is very important to the home buying process. This information gives lenders an idea of how well you manage debt. This number can help determine to mortgage rate you receive and the down payment you have to pay.
Examine your credit
To monitor your credit, pull a copy of your report from the major credit bureaus: Equifax, Experian and TransUnion. Federal law allows you to get one free copy from each company every year. Check this document for any incorrect markings that could unfairly lower your score. If you find any, act quickly to clear up the issue.
Think about closing costs
If you use a VA loan, you might be able to include the closing costs into the balance of the mortgage. However, this isn’t always guaranteed. These costs can vary depending on the price of a home and the lender you choose. According to ABA, lenders are required to give you an estimate of how much your closing costs could be. This is called a Good-Faith Estimate. With this information, you can determine approximately how much money you need to set aside to complete your purchase.
By staying up-to-date on a fluctuating housing market, you’ll be able to make informed decisions when it comes to refinancing your home loan or qualifying for a mortgage. Using a home mortgage rate calculator provided by Freedom Mortgage to determine your best course of action could keep some extra cash in your pockets every month.
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