Dear Skysurfer,
Thank you for your inquiry.
Although I cannot advise you specifically how to proceed with your
financial situation, I can provide you a rough guideline to estimate
how most people in the mortgage industry will view your loan profile.
I do this because I do not have complete picture of your financial
situation and what your financial and life goals are. I would highly
recommend at least speaking to a trusted mortgage loan agent or better
yet, a financial advisor. Ask friends, co-workers, relatives or
anyone else you trust for mortgage loan agents or financial advisors
they would recommend.
How Lenders view your creditworthiness
==Debt to Income Ratios
http://homebuying.about.com/library/weekly/aa030102a.htm
One factor mortgage lenders use to evaluate your loan risk is your
debt ratio. These are pretty easy to figure out. Ratios are simply a
snapshot of a point in your financial life. There are 2 basic ratios.
1) PITI is your projected total monthly mortgage payment, homeowners
insurance, interest, and taxes divided by your gross household monthly
income. As a guideline, this shouldn’t exceed 28% but can based upon
loan type, your credit worthiness and a few other factors. The 2nd
ratio is your PITI plus your total monthly debt (all your min payments
to your credit cards or any other loans, like auto or college) divided
by your gross household monthly income. Again as a general guideline,
this ratio should not exceed 36% but can.
==FICO Score & Credit Reports
One of the other factors is your credit score, typically called your
FICO score. This score is becoming increasingly important in the
mortgage industry as more and more lenders migrate to automated
underwriting systems. Your FICO score is a rating of your credit based
upon a mathematical formula by the credit agency. To read more go to:
http://www.myfico.com/myfico/CreditCentral/ScoringWorks.asp
My Fico
http://www.myfico.com/myfico/Home.asp
This site will send you your FICO score which may or may not be part
of a credit report you order.
Equifax ScorePower
https://www.econsumer.equifax.com/webapp/ConsumerProducts/PageFrameServlet?payloadName=pgScorePower.jsp&productGroup=CreditProfileScore&deliveryMethod=Online
Credit Reports
There are many places online to get your credit report. You may be
able to qualify for a free credit report from one of the 3 agencies -
Equifax, Experian or TransUnion.
Transunion
http://www.transunion.com/Personal/FreeCreditReportAndScoreCriteria.asp
Experian
https://scorecard.experian.com/creditexpert/creditscore/016_0_cr_home.jsp
Click on the ” Consumer Bill of Rights” link midpage on the right hand
side.
Equifax
http://www.equifax.com/about_efx/rights.html
If you don’t qualify for a free credit report you can order one
online. The prices can vary from $9 to $40 depending on if you order a
single agency report or one from all 3. However, be aware that most
lenders will run a 3-agency report on you.
Equifax
https://www.econsumer.equifax.com/webapp/ConsumerProducts/pgConsumerProducts?^start=&orderSource=EHS&PP=P1
Equifax seems to include the FICO score with the credit card order.
Experian
https://scorecard.experian.com/creditexpert/creditscore/016_0_cr_home.jsp
Transunion
http://www.transunion.com/Personal/OrderCreditReport.asp
Transunion includes your FICO score with your credit report order.
Qspace.com
http://qspace.iplace.com/cobrands/16/default.asp?sc=14010000&af=
Qspace.com will include your FICO with your credit report order.
==Other factors
Underwriters will also look at your whole financial profile. What is
your net worth? How much do you have in the bank? Do you have at
least 3 months of savings to cover the mortgage payment? Have you
been a saver? How have you managed your finances? Do your savings and
investments make sense, that is, is there a paper trail? They don’t
want to see an unexplainable lump sum show up in your portfolio.
==The Government can help
It may come as a surprise to many folks but there are several
governmental agencies that have programs to help people purchase
homes.
VA loans
If you are current or ex-military, you may qualify for a VA loan. VA
loans take longer because your loan agent has to obtain a VA
Certificate from the Veteran’s Office. The calculation of your ratios
is more inclusive as well. They include your monthly utility bills as
well. To read more about how to qualify for VA loans go to:
http://www.homeloans.va.gov/lgyinfo.htm#Five_easy_steps_to_a_VA_loan
FHA loans
The main advantage to a FHA home loan is that the credit criteria for
a borrower are not as strict as FNMA or FHLMC. Someone who may have
had a few credit problems should not have a problem obtaining FHA
financing. Also, FHA home loans are assumable, allowing a person to
take over the mortgage without the additional cost of obtaining a new
loan. In addition, the seller must pay for part of the "traditional"
closing costs (called non-allowable costs) while a borrower's
allowable costs can partially be wrapped into the loan. 100% of the
down payment and closing costs can be gifted.
The greatest disadvantage of FHA home loans is the upfront mortgage
insurance premium (MIP). On a 30 or 15 year FHA home loan that equals
to 1.50% of the loan amount in addition to the 0.5% annual renewal
premium that a borrower will pay for the life of the loan. In
addition, FHA limits the amount a borrower can borrower. For
information on how to qualify for FHA loans, go to:
http://www.fhalibrary.com/how_to_qualify_fha/credit.asp
MCC agency and other subsidized offerings
Again speak to your loan agent about available offerings in your area.
But there are several programs available that many people aren’t
aware of, especially to first time homeowners. An example of such a
program is the Mortgage Credit Certificate program sponsored by some
local government agencies. This is where a good loan agent becomes
invaluable. All these programs take time and are paper intensive.
They aren’t the easy deals. Further, make sure the loan agent
explains all the requirements of the program. Many of these have very
specific requirements and could impact how you plan your future. For
instance, some programs require that the owners reside at the
residence for a certain period of time.
==Caveats
Again having a good loan agent is invaluable. There are many, many
different types of loan programs out there. Some are straightforward,
some are not. Make sure your loan agent is willing to explain
anything you don’t understand. Or even better, explain terms that
he/she knows you don’t even know about the loan. For instance, there
are loans that don’t require any documentation except maybe your FICO
score but you typically pay a higher interest rate. There are loans
with prepayment penalties where you pay a penalty if you pay it off
early or if you re-finance your loan if the rates get better. There
are loans with negative amortization, where your minimum payments can
be adjustable but if you don’t actively manage your unpaid interest
could accrue as part of the principal, creating a snowball effect.
All these programs were designed with a specific borrower in mind and
based upon your life goals, your financial situation and other
factors; one could be the right choice for you.
==== Bottom line
Get a good agent. Get knowledge-ed up yourself.
==Here are some sites to get you started
BankRate.com
http://www.bankrate.com/brm/default.asp
Great site to track current interest rates.
Mortgage terms
http://www.homeowners.com/dictionary.html
General home purchasing sites
HomeStore.com
http://www.homestore.com/Finance/FannieMae/NewHomes/LivingHome.asp?fnma=b
Homeowners.com
http://www.homeowners.com/new131.html
HomeFair.com
http://www.homefair.com/homefair/servlet/ActionServlet?pid=27&cid=homefair
==Some online lenders
E-loan.com
http://www.eloan.com/
Lending Tree
http://www.lendingtree.com/stm/default.asp
Priceline.com
http://www.priceline.com/NewFinance/Default.asp?session_key=140011ACD00011AC2002042518254925c1c0574181 |
