Tag Archives: getting a mortgage

Why You Need To Know What Your Debt Ratio Is If You Plan On Buying A Home

The days of easy qualifying to buy a house are over and even if the banks loosen the guidelines in getting a home loan I doubt they will be like it was in the past.  From 2003 to 2007 it was pretty much all you needed to buy a home was a pulse, the Santa Maria real estate market was booming like every other place in the country .  Really all you needed was a pulse back then to qualify and some ID proving who you were, no lie.  Which is probably why we had so many foreclosures including future wannabe Donald Trumps just buying and flipping left and right until the day the party ended then it all came tumbling down.  Now you still needed to have some form credit just not terribly bad credit.  You were able to get a stated income loan with only 580 fico score.  In today’s world 90% of the banks would give you a turned down without blinking with that score.  Back then you stated your income so you can qualify.  No one verified, so if you said you made $10k then you made $10k.

In the new world of the after math of Great Recession which I think was more like a second Depression.  You really have to prove what you make and your bills do really count against you.  What comes into play is what is the amount of debt you have and will have with your new mortgage payment taking into consideration, your taxes and your insurance not just your mortgage payment.   Most lenders will cap you out at 45% debt ratios.  There may be a few that will go higher but till your loan is approved and you have your keys I would recommend you stick with a 45% debt ratio as a guideline.

So lets say you make a $2k a month then your mortgage payment including any car payments, child support , or credit cards cannot exceed $900.00, which is 45% of $2k.  Depending where you live it is going to be very difficult to find a home with a mortgage payment and your bills for less than $900.00.  If you had a car payment of $500.00 then your mortgage cannot exceed $400.00 a month.   So knowing what bills you have that may show up on a credit report will give you an idea of what you may be able to qualify with a monthly payment.

The other 65% is used to survive.  You will still have to buy food , go out and have a life not to mention utilities etc.  Now when trying to figure out your income use the gross if you are a w2 employee. So that is before taxes now if you are self employed you will have to use what you actually reported on your tax return.  Does not matter what your company made its what you reported to the govt.  Usually they can add back in depreciation or one time large capital investments.

So keep in mind when buying that car or what ever it may be that you will have to deduct that from what your income in using to qualify for a home loan.  If you have any questions just let me know.  Good Luck

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What Stops Most People From Getting Qualified For A Home Loan

If you plan on buying a home this year, here are couple of things to keep in mind.  So you do not kill your chances on getting a home loan this year and stop yourself from getting qualified for a home loan.   This will not cover everything that can keep you from getting a home loan but these are the two biggest things that seem to kill the deals that come my way.

1) This is the number one killer on getting a home loan, and stopping someone from buying a home.  Buying a car, is the number one killer whether that be a new car or a used car.  If you even think it may be a possibility that you want to buy a house this year or the next.  Wait on the car unless you can buy it cash or just changed your mind on buying a home.  Most car loans are for 5 years, so if for example your debt to income does not justify the car payment and a mortgage payment.  You may be looking at 5 years till you get qualified for a home loan.

Another thing even if you are planning on co-signing for your son or daughter that car payment just became your car payment.  If you do not want that debt to be considered as part of your debt, then make sure that your son or daughter gets their own checking account in their name only.  Make sure that they make the payments on time and after one year.  So that way the debt will not be counted against you, and keeping you from qualifying for a home loan.

2) The number two killer for qualifying for home loans.  Is paying your bills.  Even if they are old collections or just small accounts does not matter that it is a $40.00 balance that you may have on your credit card.  If you for some reason forget to pay your bills because you are just too stressed or frustrated for what ever reason.  Then you end up having a 30 day late or maybe even a 60 day late from the last time you had your credit checked and got qualified to buy a home.  So you find your home and submit your offer based off of your last approval.  But then a new credit check is done and now because you have some accounts showing that you paid late.  Your score just dropped a few points that could be enough for you to not qualify for a home loan.  Also if you know you are planning on buying a home don’t get any new cards.  That 10 or 20 % discount is just not worth it.

So don’t buy any new cars or even used ones, if you plan on buying a car in the near future, and pay your bills on time.  Good Luck !!

 

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What Kind Of Score Do You Need To Buy A House ?

Nancy asks…

trying to buy my first home but no luck?

ok me and my significant other have been living in a rental home for almost a year and we pay 700 dollars a month. Our only source of income is Social Security and rent takes up over half of our income. So we are trying to get a house but I do not think we have the credit to get a house citimortgage and wells fargo and unfortunately I have one credit score that’s 15 points short. i tried hud homes and they want 650 which is odd because a bank only wants 600 or 620 . I have no idea on how to get a house or anything. I am trying to move before Feb. 2013. My credit score is currently getting repaired and it is going up 10 points a month. Any hints or tips in how would I go about getting a house ( hud, foreclosed, whatever I can get) will be helpful. if it helps I reside in Alabama.I just do not want to rent anymore.

admin answers:

First, you will have trouble getting a mortgage with less than a 650 score…while some banks may take a look at your 620 score, the chances of getting the mortgage with less than a 620 are slim, and you will be paying at least 1% if not more over the best rates. Your other option would be an FHA loan – while FHA does not require any specific score, your credit must be clean for at least 2 years (that means no late payments in the past 24 months) and then it is up to the lender (yes, even though FHA does not require specific scores, they also give the lender considerable leeway which lenders are now using to tighten up their basic requirements).

10 points up per month is about the best you can hope for. Credit scores are based on credit history – what is past is done and you can’t change the past. You can only change you present and future, but time only goes by at its current pace – since scores are based on time, you can’t hurry up scores or time.

If the $700 is taking up half your income, that means that your monthly income is less than $1,400 and your annual income is about $16,000 – assuming you could qualify for a mortgage, the most you will be able to borrow is $48,000. Note you will need a minimum of 3.5% down (no borrowing for a down payment) plus 5% for losing costs – this puts your house price at no more than $50.000 total and you needed almost $5,000 to actually close on the house and move in – and that is $5,000 in cash. So the question is, do you have the $5,000 in cash and if not, can you save it by February?

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