Are you ready to buy a home but not sure where to start? My suggestion is to get pre-qualified for a home loan before you start looking seriously. Why? Because you don’t want to fall in love with a home and find that you don’t qualify for that price home or, worse, that you don’t qualify at all.
You’ll want to work with a reputable lender, so ask friends and relatives for referrals. Meet with the lender in person at his office so you get a feel for the company and the loan officer. Ask lots of questions! This is a big purchase and you have every right to understand the process.
There are several pieces to the puzzle of getting a loan and there are many, many variables depending on the type of loan you are getting, your credit, down payment, interest rate, etc, but here are some of the basic requirements for an FHA loan as of this writing:
- Income: Generally (this varies) you can use about 43% of your total gross allowable income for your house payment (including taxes, insurance and mortgage insurance) AND all of your other monthly contracted debts (typically those showing on your credit report).
- Down Payment: You will need at least 3.5% of the sales price of the home for your down payment for an FHA loan. There are very few 100% programs available but if you are a veteran, be sure to tell your lender – VA loans are a great option!
- Credit Scores: At this time most investors are requiring a 620 score or higher. You will generally have one score from each of the three credit bureaus and they will use the MID score for ALL parties that will be on the loan. Oftentimes, just lowering your credit card balances to 30% or less of the limit will increase your scores but remember that closing credit cards can actually cause your scores to go down. Read more about the importance of credit scores when buying a new home.
- Credit Content: Lenders also have guidelines on what appears on your credit report. For instance, if you’ve had a Chapter 7 Bankruptcy in the past, you will have to wait at least 2 years from the date of discharge even if your scores are high enough. You will also have had to re-establish good credit to show your financial situation is now stable. Judgments must be paid so they don’t affect the title to the property. If you are behind in child support, that will have to be brought current. If there are collection accounts on your credit report, you MAY be asked to pay those at closing. (Note: if you are planning on purchasing in the near future, DON’T pay collections until closing because that often LOWERS your credit score).
Overall, realize that the loan process is complicated but if you are working with a good lender, you are in good hands and you will soon know the joy of moving into your new home in Utah!
