Home Loan Qualifying- Plan For It

Your Plan Of Action Should Include:

Budget:

Use receipts to create a budget that reflects your actual habits. This should cover most of the surprises, the actual bills, utilities, and groceries.

You’ll spot some areas to save for a down payment. Making your coffee and meals at home for a few months might be all you need to do.

Plan To Reduce Debt:

When qualifying for a home loan, your debt to loan ratio is calculated first. Verify that your debt to house payment ratio is under 40% of your income. And remember that they don’t want your mortgage to be more than 25 and 28 percent of your net household income.

Therefore, you’ll need to get monthly payments on the rest of your installment debt reduced if possible. These include car loans, student loans, and revolving balances on credit cards. Get them down to between 8 and 10 percent of your net monthly income.

Car loans are not counted as debt if you have 10 payments or fewer left. This means: do not worry about paying off a short-term car loan. You might want to make a few payments to get down to 11 months. Hint-hint.

Increase Your Income:

Now’s the time to ask for a raise! Family contributions might be an option too. Another option is to sell extra “stuff.” You may want to consider taking on a second job.

Your goal is to get your income and savings at a level high enough to qualify for the home you want. To qualify for more, you need to make more money, put more money down or to reduce your debt.

Saving For A Down Payment:

Qualifying for a mortgage loan requires a down payment and closing costs. We can get creative by asking the seller for money and adding to the price offered for the home. You can also pay an additional 1/4-1/2% in interest rate to cover closing costs. We can get creative – let’s strategize.

Ideally, 5%-22% of the purchase price is what you should have saved before you start looking for a house. Although there are programs and ways to buy a home with a 3.5% downpayment, the cost of the money you borrow is higher.

Lenders like to see money in your bank or investment account for a minimum of 3 months. They want to see that your down payment is not illicitly gained funds. Home loan qualifying is heavily regulated.

Private Mortgage Insurance

Designate a certain amount of money each month to put away in your savings account. Although it’s possible to get a mortgage with 5 percent down or less, they charge mortgage insurance.

Private mortgage insurance (PMI) is charged to borrowers who put under 20% down. The rate fluctuates with the lowest down payment paying higher rates.

Sometimes you may have to weigh putting 20% down between paying off debt to lower ratios or qualifying for a larger loan. Don’t forget that besides the down payment, there are closing costs.

Keep Your Job To Qualify:

Home loan qualifying is based on employment. Having a job in the same line of work for two years is the guideline used. OR being a new college graduate can be an exception. For most everyone- Don’t quit your job quite yet! Don’t become self-employed yet!

Establish Good Credit History:

Financing can be tricky. The lender will package your paperwork and send the package to an underwriter. An underwriter wants to see that you have a life and can afford to finance a new home.

They want to see that you have a credit card or two and make payments by the due date. They’ll also want to see that you haven’t ever negotiated down a loan after not paying for a while. If you’ve screwed up, give it at least 10-12 months to raise your credit score.

Also, pay all other bills, including utilities, on time. Utilities can be used as a credit reference with an FHA loan. AUTO-PAY EVERYTHING! Try to use only 1-2 credit cards and pay them off each month.

Home Loan Apps Need Credit Reports:

Go to:  www.annualcreditreport.com for your free annual credit report. Make sure it is accurate and correct any errors immediately.

A free credit report provides a history of your credit, bad debts, and any late payments. Unfortunately, most free reports do not have your actual FICO score, which is the magic number everyone wants to know.

Paying for a credit report will give you your actual credit score. But, see if you have negative credit to clear up first. We also suggest that you pay for your own credit report to take with you or to send lenders for an initial pre-qualification and quote.

The above video is from the Federal Trade Commission and is only a few minutes long. It’s worth watching. As I said above, don’t pay for a credit report until you are ready. Some lenders try to get you to pay $50-$100 for a report to get you committed. I suggest that you carry your own “paid for credit report” with your own FICO Score on when you are ready to shop interest rates and lenders.

Home Owner’s Insurance:

Talk to your insurance agent to make sure you have no red flags. If you have repeated robberies under your name or arson, they would hurt your chances of getting Homeowner’s Insurance. Also, ask what percentage your car insurance would go down if they got an additional type of policy (if you don’t currently own your home.)

TIP: If you are currently renting without renter’s insurance, call your auto insurance company. You should be able to add it for no additional cost by getting a multi-policy discount. Shopping car insurance rates might also save you money.

Accounting, Payments, and Loans:

Rule of Thumb- homes valued between two and three times your gross income will be in your price range. Your lender will tell you what you can finance based on your ratios. What’s really important is what size payment you feel comfortable with.

Keep in mind that if you finance your home, you may have interest and property tax write-offs. Do you want a 15 or 30- year loan? Fixed or adjustable-rate mortgage?

Note: If you have a 30-year mortgage and make a payment every 4 weeks, not every month, you will pay your house off 8 years sooner. With rates so low, you’ll probably want a fixed rate.

Investigate Down Payment Assistance Programs:

Right now, Nevada has a 3% grant program so ask your lender about it. If your lender doesn’t know about this program, call or email us. Let us refer you to a lender who’s on top of all of the downpayment assistant programs.

The State of Nevada has a program with an interest rate based on your credit score. Even with good credit, the rate is higher than normal. Nothing is free, however, owning a house is worth it.

After 3 years of occupying the house, you do not need to pay the money back. Another possible source for down payment money is an IRA and 401K plan. Often you can use the money you’ve saved to buy your first home without a penalty.

Trustees usually allow access to trust monies for home purchases. Give your broker or trustee a call, so you know for sure! If a family member is gifting funds, get them and deposit them into your bank account. Remember, all money must be trackable for at least three months. No cash- empty the mattress!

While In Escrow, DO NOT Spend Money:

No Shopping! When financing a home, your home loan qualifying will also be based on last-minute credit checks before closing.
Be Patient!

Pack, meditate, exercise, sleep but resist going to any store except for a grocery store. Stores are evil! Wait until after you move, then have fun shopping!

Know that all of your home loan qualifying efforts can go POOF! with just one credit card purchase. And, in most cases, if you blow your home loan qualifying all by yourself, you may lose your earnest money.

If you have to cancel right before closing, your loopholes are gone. Sellers will be extremely unhappy and not very understanding. Please don’t give your money away by letting this happen- it’s pretty lousy.

Remember, you don’t want to go shopping. Don’t put a deposit on anything. Stay out of the casino. No pool buying yet! No new car yet! Please don’t blow your home financing out of the water.

So, let’s make a Rule of Thumb: DON’T CHANGE ANYTHING UNTIL YOU HAVE KEYS! Look at ideas on Pinterest, just hide your credit cards, and stay home and pack! (These warnings are based on our past client’s sad experiences)

Qualifying For More Money:

Often people can afford a larger monthly payment than they are approved for. Everyone has a unique situation, so I’ll mention a few things that will let you see that there are options. Ask every lender that you interview questions! They might have a strategy that you can utilize. Qualifying for more money can be technical.

With VA loans, child care costs count as debt affecting your debt-ratio. Possibly getting a conventional loan would work better for you if you have kids in child care. Association fees are another factor. Ask if your loan type qualifications are affected by these additional fees.

Home loan qualifying can be a pain, but it’ll be worth it for years to come. Buying a home is often the most expensive investment you’ll ever make, so plan for it and get the home you want.

Alternative Loan Programs

After the financial recession in 2008-2012, stated income loans with no documentation went away. (Smart). You can now qualify for a loan with bank statements.

Self-employed people need a P & L, 1099’s, and tax returns for two years. Income is averaged. If you don’t have established credit, FHA grants loans using utility bills as credit.

Hard money is quite expensive but makes sense sometimes. Owner Will Carry (OWC) financing is less prevalent since interest rates are lower. Bridge loans and lines of credit can be quite helpful.

Qualifying For A Loan In 2023 Tips

Making an offer on a house with a home-selling contingency is a tough offer to have accepted in Las Vegas. Cash and loan-approved buyers will win every time before someone with a home to sell. If you don’t want to sell your house before buying a new house, you have options.

Let’s get creative and strategize when in a multiple offer situation. There are a hundred ways to buy or sell a house. Each seller and buyer have different motivators. Having a strong downpayment or cash to buy a house gives you the buying power. Higher-end properties ,take longer to sell, so price is a factor too.

Shop rates and interview your Realtor and Lender. There are hundreds of Realtors and Home Loan Consultants. Our favorite two are Caren Becker and Bruce Singer. They both have 20-30 years of Las Vegas experience and make loans happen. Interview your bank and both of them. Work with the lender you get along with because you talk to them many times during the loan and home buying process.. 

Should I Use the Builders Lender?

Do not automatically use the builder’s lender for a new home. We had a client turn down a $10,000 incentive because the builder’s interest rate difference was over $10,000. Do the math – some lenders charge a higher interest rate for a loan, especially when the builder charges them a referral fee.

Online lenders have good rates. Timeline and meeting the closing date on time have been a problem for our clients. When closing late on a house, you can lose it and your earnest money. It’s not worth the risk.

The online companies like Rocket Mortgage only do “in the box” type of cookie-cutter loans. They call you every day even when you tell them not to. If you are self-employed, don’t bother looking online.

It might seem hard but, the telephone works best when interviewing a lender..

Get A Creative and Experienced Lender 

Bridge loans have a higher interest rate. Creative financing may save you a considerable amount of money where re-financing is not needed. Here’s one example: what if you got an 80% regular home loan with a 10% 2nd trust deed and a 10% line of credit on your existing house?

When your house closes escrow, you can pay off the smaller loans and not have any mortgage insurance in the meantime.  Or a 70-20-10. Or a 2-1 duy down. This is when the interest rate difference is in an account and if you refinance, you get the buy down rate prorated. Adjustable rate mortgages?

Let your experienced lender make suggestions- this is their job.