Helpful Hints
Many new home buyers make the mistake of rushing out to buy things to fill their new home as soon as the seller accepts their purchase offer and the lender pre-approves their loan.
Here are some things you need to keep under advisement before your handed the keys to your new home. Things you want to avoid during the home buying process to assure your transaction goes as smoothly as possible are:
Don't make an expensive purchase. It may be tempting to order that new sofa for your soon to be new home. It's best to avoid making large purchases like furniture, cars, appliances, electronic equipment, jewelry, or putting that down payment on a cruise vacation, but wait until after the closing. Financing that furniture with a store credit card or even one of your own credit cards could jeopardize your credit worthiness during the time it means the most. Using cash to purchase big items can also create a problem because many lenders take into consideration your cash reserve when approving your mortgage.
Don't switch jobs, unless you are in the same career field. Lenders like to see a consistent job history. Generally, changing jobs will not affect your ability to qualify for a mortgage loan - especially if you are going to be making more money. But for some people, getting a new job during the loan approval process could raise some concern and affect your application.
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Don't switch banks, move money around and make sure you can explain any deposits other than a paycheck. Lenders want to make sure your not borrowing money for a down payment on the new home. Your debt to income ratio effects your ability to qualify.
As your lender reviews your loan package before submitting it to underwriting, you will likely be asked to provide bank statements for the last two or three months on your checking accounts, savings accounts, money market funds and other liquid assets. To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds.
Debt to Income Ratio
Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.
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Debt limit
There is generally a debt limit associated with each type of loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.
Understanding the qualifying ratio
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner's association dues).
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.
For example:
With a 28/36 qualifying ratio:
Gross monthly income of $2,500 x .36 = $900.00 can be applied to recurring debt plus housing expenses
With a 29/41 qualifying ratio:
Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
Gross monthly income of $4,000 x .41 = $1,640 can be applied to recurring debt plus housing expenses
Simply guidelines
Remember these are just guidelines. I would be happy to pre-qualify you to determine how much money an investor will loan you, and the best type of loan that meets your financial needs.
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