There’s no question that credit resources have tightened across the United States and abroad. The subprime loan mess has left huge echoes of dismay from lenders that make it much harder to qualify for a mortgage from any mortgage company. Whereas, in the past, you could be relatively certain of getting into a home (even with no money down), today’s mortgage company is requiring far more stringent guidelines be followed. Along with the mountainous pile of paperwork you have to fill out, you may be asked for even additional documentation in this climate of loans, which went badly.
Keep Track of Your Credit Score
Now, even more than ever, your credit score counts. The average good score has been raised to 720 to 750 for most lenders, including mortgage lenders. A mortgage company will scrutinize your credit report heavily. There are new rules coming about that may help those whose credit only suffered a minor ding here and there, but if you have multiple late payments and defaulted loans, your chances of getting approval from a mortgage company drop substantially. Since most mortgage lenders are not doing subprime loans anymore, if your credit is not good, you will find the battle to be uphill.
Collect Your W-2s, Tax Returns, and Bank Account Statements
A mortgage company may ask for additional proof of your income and assets besides just your tax returns. They may also ask for several month’s worths of bank statements and copies of your W-2s. You can expect to have to substantiate any level of income you state on a loan. Unlike the past liar’s loans, which allowed self-employed people to estimate their income with little documentation, newer guidelines will keep this from happening.
Expect a Sizable Down Payment
You will be asked to put down from 10 to 20% of the home’s value as a down payment. If your credit is less than stellar and/or your income fluctuates, then you may be asked to put the full 20% down in order to qualify for the interest rate that you want on the loan that you want. You can negotiate with the mortgage company to put down less than the full 20% but it usually comes a higher cost of a higher interest rate, which can add hundreds of thousands on to the cost of the loans. In addition, should the home’s value depreciate, as some have done in California, the additional equity you’ve placed in the home can keep you from being upside-down later when you want to sell or refinance.
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