Ready to Buy|
Are you ready to buy a home?
When you want to buy a home, you will be faced with many decisions. The first is whether you are actually ready to buy. Finding the right home is not always easy, and getting a mortgage loan can be time-consuming and complicated. To help you decide if you’re ready to buy, we’ll take you through the steps a mortgage lending institution uses to decide if you qualify for a mortgage loan. When you take out a loan, you sign documents that say you promise to pay back the loan. When a mortgage lending institution makes your loan, it has determined that there is a good likelihood that you can keep that promise. The mortgage lender knows that it does not help you or the lending institution if you are given a loan, but then, for any reason, are unable to make the payments each month. To decide if you will be able to repay the loan, the lender will look at many different pieces of information about you. This process is called “underwriting.” These pieces of information show how well you have repaid your debts in the past, whether you are likely to repay your debts in the future, and your ability to repay the mortgage and your current debts. There are some general guidelines that help a lender in looking at these pieces of information about you. But you should also remember that there is some flexibility in these guidelines, because everyone’s financial situation is different. If you are very strong in one area, it may help balance out another area in which you aren’t quite as strong. The Fannie Mae Foundation wants you to be financially comfortable and secure in your new home, so we provide information that helps you make sure you and the size of your mortgage are a good fit. Go through the questions below and test yourself. If you aren’t ready to buy a new home now, you’ll find we’ve included information that may help you qualify in the future. When you get to the end, you will have a better idea of whether this is the right time for you to buy a home, or whether you need to work on improving your credit history, paying off existing debts, or saving more money. Either way, New York Realty Exchange will be able to give you some helpful information.
How steady is your job history?
This is important. Having a steady job helps you to keep your promise to pay back a mortgage loan. If you have been working continuously for two years or more, you are considered to have steady employment. A lender will need to know your job history, and it will be a major factor in whether you qualify for a loan. However, you do not have to have held the same job for two years in order to be approved for the loan. Job moves that result in equal or more pay and continue to use proven skills are a plus for you. If you have been working continuously for less than two years, the mortgage lender will look for an explanation. There may be a good reason:
There may be other acceptable reasons why you have not been employed continuously for two years, too. For example, you may have been laid off because of a plant closing or an illness. Of you may be in a line of work in which frequent job turnover can be customary, but you have been consistently employed and have maintained a regular, consistent level of income. If you have been fired for cause such as excessive absences, have long gaps in your employment record, or have dips in your income level that are difficult to explain, you should probably delay buying a home until you can demonstrate that you have a stable work history. Based on the information above, give yourself a “+” if you think you have a stable work history or a “_” if you do not.
Do you pay your bills on time each month?
How you paid your bills in the past gives a lender some indication of how you can be expected to pay them in the future. When you apply for a mortgage, you will be asked to list all your debts, the amount of your monthly payments, and the number of months or years left to pay on the debts. Your lender will order a credit report to verify the information that you give and to check on how well you have kept your promises to repay your debts. Credit reports are provided by credit reporting companies that make inquiries through a wide range of available sources of information: banks that may have given you a car loan, credit card companies, even gasoline companies and department stores that offer credit cards. It’s important to disclose all debts and any difficulty you may have had in the past in repaying these loans. It’s also important not to leave out any information about money you owe. Credit reporting companies have access to a great deal of financial information about you, and they make it available to lenders who will be reviewing your loan application. If you have previously owned a home, and your mortgage has been foreclosed upon within the last seven years, the foreclosure will be revealed on your credit report. Having a foreclosure on your records doesn’t mean you can never buy another home. Your lender will want to know the reason for the foreclosure, and most prefer that three years go by before you apply for a new mortgage. If you have declared bankruptcy within the past ten years, that also will be revealed on your credit report, and it will be helpful for you to explain the circumstances surrounding it. Lenders usually prefer that you wait two years after discharge of the bankruptcy before assuming a new large debt like a mortgage loan. This gives you time to reestablish credit and show that you are again able to manage your financial affairs. Sometimes credit reports are inaccurate, or they give a misleading picture of past credit problems that have since been resolved. To check the accuracy of yours, you can obtain a copy of your credit report. For a small fee or sometimes for free, you can request a copy from a “credit reporting agency” listed in your local Yellow Pages. If you find any errors, you can take steps to have the report corrected. If your credit report shows that you do not have a good credit history, and the information reflected is correct, you should probably delay trying to buy a home and take steps to improve your credit profile. For example, you may have too many debts, or you may pay some debts late each month. If so, you should work to bring your payments up to date and to pay off some of your debts. Even if your debts are current, you may not be considered a good candidate for a loan if you have made your monthly payment after the due date each month. After you have decreased the amount you owe and are able to show a two-year history of making payments on time, you may be ready to begin looking for a home to buy. Give yourself a “+” if you have a good credit history or a “_” if your credit history shows some recent, unresolved problems.
Do you have a credit history?
If you have never had any credit cards or taken out a loan through a financial institution, the various credit reporting firms may not be able to issue a credit report on you. In that case, you may be able to use a “nontraditional” credit history. For example, you may be able to document that you pay your rent, telephone bills, or utility payments on time each month. You can put these records together yourself by making copies of canceled checks or showing copies of monthly bills that do not have any late charges. A mortgage lender may be able to help you put this information together. If you have a good record of paying your rent and other bills and will be able to prove that record, give yourself a “+.” If you do not always pay your bills on time, or have no record of your payments, give yourself a “_.”
Do you have money saved for a down payment?
When you buy a home, you will need money that you have saved for a down payment and “closing costs.” The amount of the down payment may vary, but generally you must make a down payment that equals at least 5 percent of the purchase price. You will also need money for closing costs. These costs can be expensive, depending upon where you live. Sometimes the property seller is willing to pay part of your closing costs. No matter where you live or which type of house you choose, lenders will use some general guidelines to determine if you qualify for a mortgage loan. Before you begin house hunting, you may want to read this guide to determine whether your income and your debts are in line with what lenders will be looking for and how big a mortgage you an afford. The mortgage lender will want proof that you have saved the funds that you will use for a down payment and part or all of the closing costs. If the funds are in a savings account, the lender will ask the financial institution to verify the amount and the length of time that the funds have been in your account. The lender wants to make sure that you are not borrowing all the money you will use for the downpayment and closing costs. Some communities have programs to help first-time buyers. With some of these programs, you may be able to accept a gift from a relative or to borrow a portion of the money you will need for the downpayment and closing costs from a local nonprofit organization or government agency. With others, you may be able to get a grant or other funds that you will not have to repay and can use to cover some of these costs. If you do not now have at least a portion of the money saved, this probably is not the right time for you to try to buy a home. Instead, if would be a good idea to open a savings account and begin putting away some funds from every paycheck. The longer you have accounts and the longer and more consistently you have been able to save money, the better you will look to lenders when you are ready to apply for a mortgage in the future. Based on the information above, give yourself a “+” if you have money saved for your down payment and closing costs. Give yourself a “_” if you do not have money saved right now.
Can you afford to pay a mortgage each month?
If you pay rent each month, you may be prepared to make monthly mortgage payments. The amount of your monthly payment depends upon the amount you borrow, the interest rate, and the repayment period or “term.” The shorter the term, the higher your monthly payment. For that reason, most home buyers repay their mortgage over the longest term possible, usually 30 years.
How to calculate your payment.
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How large a mortgage do you qualify for?
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