Buying A Home

Before you drive that first neighborhood looking to buy a home, or calling your local Realtor inquiring about one of their listings you first need to check your credit report even if you believe that your credit record is perfect. As 30% of all of tradeline information is reported to the credit bureaus is in error. The credit bureaus are aware of this, but they wait until you bring it to their attention to correct this misinformation. As the law requires that only accurate information is allowed to be reported in the credit record of any consumer's credit file.

You are allowed one free copy of your credit report from each of the three national credit reporting agencies: Experian, Trans Union, and Equifax per year in preparing to purchase a home. You can contact each of these credit bureaus separately, or find a internet credit service provider that will offer to provide these reports in one merged credit report. It is important that you get a copy of each of the three credit reports. Then take the time to examine each of the three credit reports separately line by line making sure that the information is correct.

By law the credit reporting agencies have 21 days to verify with the creditor(s) that the information listed in the credit file is accurate. All incorrect trade lines must be deleted or updated to reflect accurate information. Most people require a mortgage loan to purchase a home. The current real estate market is a challenge for some borrowers attempting to qualify for a mortgage. Due to the housing crisis of 2008 credit qualifications have become tightened new rules have placed restrictions eliminating loan programs that were felt to be the cause of the mortgage crisis examples are the no down payment, and minimal credit programs.

The mortgage companies have minimal credit score guidelines, and down payment restrictions qualifications that they use to approve mortgage loan requests. Conventional lenders like banks, credit unions, and mortgage originators use a minimum score of 700 to qualify potential mortgage applicants. For applicants with lower credit scores or down payments lower than 5%. The Federal Housing Administration allows credit scores as low as 600, and a down payment with a minimum amount of 3.5% of the home purchase price. This is important information as the average conventional loan requires a 20% downpayment, and a superior credit score to approval a loan.

There are other factors that mortgage lenders uses in qualifying potential mortgage applicants for a loan they are: Solid job history (2 years minimum), low debt to income ratio (DTI), and the proper amount of funds to close a real estate transaction. The debt to income is a ratio of your gross monthly income divided by your total monthly debts, plus the proposed monthly mortgage payment (which includes taxes and insurance if an impound account is necessary). This maximum DTI is 45% for most conventional lenders and 55% for FHA lenders.

Conventional financing have a loan limitation of $417,000 or less they are sold on the secondary mortgage pool market to a quasi-government agency and private corporations named Fannie Mae and Freddie Mac. When loan limits are over $417,000 they are called non-conventional financing. There are other government supported loan programs like FHA, VA or state supported loaning programs to assist certain groups in buying a home where conventional financing is not able to assist.

Now that you are sure that your credit report is clean it is time to contact a bank or mortgage company. It could be your local bank or there are multitudes of mortgage lenders on the internet. A good place to start your search is with the bank that you are currently doing business with for your checking, savings and/or VISA/MC accounts. Also do not be afraid to ask friend and/or family members that have mortgages on their properties for recommendations. Most good lenders have similar interest rates, but customer service can be a different issue.

Once you have done your research on a lender that you are interested in now it is time to make contact with that lender. This original contact can be by telephone or through the internet. What you are seeking to get is a Pre-Approval letter from the lender for the maximum amount that they are willing to lend you to purchase a home. It is important to know a price range of a house that you can start your home buying search. The mortgage company or bank will ask for personal information from you in assisting in qualifying you for the Pre-Approval. The required items that you will need to get together for the loan representative is a:

Completed loan applications supplied by the lender listing all bank accounts with balances, debt (credit cards, student loans, auto loans... etc) if you are married you will need all of the same information for your spouse. Additional, information required is:

• 2 years Federal Tax Returns signed with all schedules included and W-2's for both years.

• Two months of bank statements all of the pages(back and front)

• Full month of paycheck stubs for both you and your spouse

• Copy of Drivers Licenses

• Copy of Social Security Cards

The loan officer might require a payment of $25-$50 to run the credit report which is necessary. It should take about 1-2 days to get a Pre-Approval letter for buying a home from most lenders not more than one a week. The lender should provide you a copy of the loan disclosures in about three days which will spell out all of the loan terms the lender is offering. This is law in most states so make sure that you get your copy of the loan disclosures before going any further with this lender. Now that you have your Pre-Approval letter in hand you are ready to contact that Realtor, surf the internet or drive the neighborhoods in search of buying a home. If you do your homework upfront locating this home will be the easy part of purchase a house so good luck.