Being prepared with the right information is key when purchasing your first home to ensure you get the best deal and most suitable mortgage for your needs.
Credit and Credit History
The credit scoring system shows how the consumer has been managing their credit and paying their liabilities. Scores range from 278 to 901. Most lenders prefer a credit score of at least 680 but there may be some exceptions depending on your specific situation.
Before applying, obtain both your credit score and credit history report. Be sure to pull reports from all three major bureaus for free at annualcreditreport.com. Verify there are no errors. If you spot an error, write to that specific creditor and request a correction. In regards to any bankruptcies or short sales, there should be a period of at least four years after these events occurred and a period of seven years for any foreclosures.
Lenders review your credit report to see that accounts have been open for at least a year and that there are no large outstanding debts. A lender will verify your rental history for any late payments in the past year.
Finances and Assets
The more you save for a down payment, the greater the choice of mortgages will be available to you and the lower your monthly payments will be. Most loan programs require between 3% and 20% but there are programs available through Service Credit Union and other financial institutions, the Department of Veterans Affairs, and the U.S. Department of Agriculture that offer no-money-down loans to those that qualify.
In addition to a down payment, you will typically need to pay application fees and closing costs. Closing costs can be paid using your own saved funds, a gift from a family member, seller concessions, a loan from your own 401k or asset account, or any funds that can be verified to be yours. Be careful about saving cash at home or taking cash payments for an item you sell. All funds need to be verified.
Income and Job Stability
Lenders will look for a solid and stable job history for anyone listed on the mortgage and will want to verify two years of employment. Time spent receiving a degree can often be credited towards employment history as long as it immediately preceded employment in a related line of work.
For self-employed borrowers, it’s best to have a business license showing you have been in business for at least two years accompanied by tax returns with business returns showing a stable or increasing income.
Once your offer is accepted, it becomes a binding contract so be sure to include the necessary contingencies. Common contingencies are the sale being subject to approved financing, the sale of an existing home, and/or a satisfactory home inspection.
The property you want to purchase should be complete and in a safe condition. A home inspection will identify the need for any major repairs.
Finally, a lender will require an appraisal to confirm that the home is in fact worth what you intend to pay. The appraiser will do a walk-through of the property, sketch and photograph the property layout and look for any safety code violations. If there are any, they may need to be fixed before the loan is approved.
On closing day, the seller officially signs over the house to you. Sign the papers, get the keys, and move into your new home!
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