The 5 Initial Steps to Homeownership
Shopping for a new home? What should you expect when applying for a residential mortgage? Understanding what to expect can make simplify the process. Sometimes surprises just aren’t fun, especially when they involve last minute paperwork. To help you understand, we worked with our preferred lender, Shelter Mortgage to develop these 5 initial steps to homeownership.
First, you need to determine how much home you can afford. This primarily depends on your “debt to income ratio.” Debt is what you owe. It will show up on your credit report and typically includes things like: credit cards, auto loans, student loans, child support and alimony, and of course any home mortgage that you presently have.
Second, a tri-merge credit report is evaluated to determine your qualifying FICO score. You may hesitate and ask, “What if I have little or no credit history?” The lender can use alternative types of history to serve as credit and include utility bills, auto insurance and rental payments. “What if I had a recent bankruptcy?” The lender typically requires two or three years from date of discharge to allow financing, depending on the financing product. “What if I have collection(s) which are not paid?” The type of loan will dictate if the collection(s) must be satisfied. There are programs that allow for some collections to remain unpaid.
Third, income must be evaluated. Typically this is a simple as last year’s W-2. If an individual is self-employed, lenders will require two years tax returns. Other sources of income include: Social Security, Disability, Pension, Child Support and Alimony.
Fourth, “How much money do I need for a down payment?” Lenders offer a variety of loan options, some requiring no down payment, as well as, programs that offer down payment assistance depending on credit and income.
Fifth, “What is the best loan option for you?” There are literally hundreds of options for borrowers today, but there is only one best fit for you. Ultimately, several factors play a part in selecting a loan option, which is reliant on Credit, Income and Assets “CIA” of Homeownership. It’s best to review this with your Mortgage Loan Specialist so that they can help you determine what your strengths are.