Recently an applicant contacted me who is a first time homebuyer. She had no idea where to begin on the loan process. Even if I believe the person will not qualify for a mortgage at this time, I try to educate the person in order to prepare for the future.
The following are a few tips I use to help you get started in your quest for a mortgage for your home purchase:
There are 5 criteria for mortgage underwriting: We call this E-CASA
1. Equity - How much money you will be putting down (down payment).
2. Credit - You will need a credit score of 620 or higher as well as anyone else who will be on the loan application. Bankruptcies need to be discharged 2 years ago for FHA and 4 years ago for Conventional. If you had a foreclosure, it will be extremely difficult at this time to obtain financing for a home.
3. Ability - The ability to pay the loan back - what your current debts and future debt (house payment) are compared to your income. This is called debt to income ratio.
4. Stability - How long you have been on your job or in your field of work - Generally a lender wants to see a two year work history in the same field with no gaps in employment.
5. Assets - How much money will you have left after the loan is closed? What is your net worth? The more assets you have shows your ability to save money. Do you have any overdrafts on your bank statement? Do you take your account down to the last cent every month? If you do, you will not be able to show that you can handle a larger payment each month.
If any of these basic 5 areas are weak, the loan has to have a compensating factor for the weak area.
A consumer may pull their own credit report once a year at http://www.annualcreditreport.com/. The Federal Trade Commission made it possible for you to do this to keep tabs on your own credit profile. Your credit score is not lowered if you pull your own credit report.
Start by getting your credit report to see what your profile looks like. That is the best place to start. If there is derogatory credit, you will need to start repairing it. Good Luck to you!