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What You’ll Need Before You Buy a Home - 2010-07-04
WHAT YOU'LL NEED BEFORE YOU BUY A HOME

For most of us, the biggest hurdle to buying a home is the cost. Yes, some homes are sold for cash, but no, it doesn't happen very often. Instead, most of us get a long term loan to help make ownership affordable. And as you approach the process of securing financing, you should get ready to provide a mortgage lender the following information:

* Income and Employment

What is your current income? Your income is proof to your lender that you will be able to pay the loan back on a monthly basis. Interestingly, the house is not the basis of your loan approval - your income is. The first thing the lender wants to  know is: "How will you be able to pay make the monthly payments."

Different loan programs use different formulas to calculate what percentage of your monthly income should be allotted to housing, so it's smart to ask your loan officer to help you shop and compare among several.

Are you employed?  You'll need to provide pay stubs as evidence of income, and your employer will need to verify your status. Lenders even ask what your prospects are for continued employment.  If you are self-employed, expect a higher level of scrutiny and a closer examination of your recent tax returns.

Do you have a history of steady employment?  Lenders like to see a steady history of employment in the same line of work. A recent job change is not a problem unless you changed your type of work. However, if you have recently decided to quit being a taxi driver to become a pastry chef, it may take a year or two for a lender to be convinced you are going to be successful.

Down Payment

Your lender will ask how much money you have available for a down payment. It is important to the lender's approval process to consider the buyer's cash investment in his own home. So the more down payment you are able to make, the easier it will be to qualify.

A down payment of 20 percent of the purchase price demonstrates your commitment to long-term home ownership and provides you with immediate equity in a new home. Loans requiring smaller down payments are available, but are typically more expensive and require higher credit scores. Again, talk to your loan officer.

Credit History

Your loan officer will review your credit report to reveal how well you’ve met your financial obligations in the past. In addition, the lender will order a copy of your credit scores, which is a mathematical prediction of the likelihood you will default on the loan.

In recent years, lenders have become increasingly focused on credit scores as an indicator of the risk they face in granting you the loan. Next week we'll look in detail at credit reporting, and see what you can do to improve your credit score.











                   
 
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