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Your Financing Options

No longer are people who want to purchase a house limited to their local bank. There are traditional hometown banks, mortgage brokers, and online financing organizations that have a variety of loan options for prospective homeowners.

Each of these choices have their own set of lending process, paperwork, and requirements. However, all of them rely on several sets of criteria to determine credit worthiness. Below we outline the very basics of these.

Also, we have provided a short video for that explains the difference between individual banks and mortgage brokers. Just click the image or the text link below to view.

Initial Considerations for Loan Eligibility

Lending institutions use the following criteria to calculate what size loan you are qualified for. The three main things they look at are:

Your monthly payments as a percentage to your income.

The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, monthly mortgage payments should be no more than 29% of
gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41% of income.

The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.

Calculate Your Debt-To-Income

Downpayment

With dramatic changes in the real estate market, most mortgage lenders require at least a 20% downpayment, however there are options available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan.

Closing Costs

Closing costs generally range from 2% to 3% of your loan amount. Closing costs can be divided into three main categories:

• Lender fees. Fees can include origination, points, application, credit report, and appraisal.
• Third-party fees. These fees vary by state and the company you select to close your loan. They can include fees for closing, title exam, title insurance and recording.
• Pre-paid items. These are items collected at the time of closing but are not really considered costs (for example, interest, taxes, and hazard insurance).
  

Credit Ratings

A credit bureau score is a number, based upon your credit history, that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.

There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it's important to verify its accuracy. Double check the "high credit limit,"'total loan," and 'past due" columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire a free one. Contact the reporting companies at the numbers listed for more information.

CREDIT REPORTING COMPANIES:

• Experian 1-888-524-3666
• Equifax 1-800-685-1111
• Trans Union 1-800-916-8800

In This Issue

Your Financing Options

Initial Considerations for Loan Eligibility

Downpayment

Closing Costs

Credit Ratings