In today's environment of low interest rates, government bailouts and a real estate market that has suffered a rapid decline, home ownership still enjoys unprecedented popularity. On some fronts, this may sound like risky business, but don't be fooled. Owning your own home has, and always will be, a major component of establishing a solid foundation of economics for both you and your family.
Check your credit. Credit bureaus are instrumental in reporting both accurate and inaccurate information. Trans Union, Experian and Equifax comprise the big three credit repositories who establish your credit profile. It is your legal right to receive a free credit report once a year, but you must request it. If you spot errors or inconsistencies, contact the bureau and dispute the information. It then has 30 days to either correct or substantiate your claim.
Gather evidence of your income (employment). This ranks even higher in significance than your credit profile. Mortgage banks are looking for a solid two year history at the least. Current pay stubs and W-2's will be required. Copies of your most recent tax returns may also be requested if you receive substantial overtime, bonuses or are self-employed.
Come up with cash for 20 percent down to avoid additional mortgage insurance (called PMI), which most lenders require if your down payment is less than 20 percent. FNMA or Fannie Mae require the 20 percent down payment currently and many lending institutions follow this mortgage lending model.
Look into FHA loans, which are insured by the Federal Housing Authority and will allow you to put down as little as 3.5 percent. These loans require you to pay its own mortgage insurance if you are financing more than 80 percent of the required mortgage amount. FHA's mortgage insurance premium (MIP) can be financed into the loan. Another reason for FHA's popularity is credit foregiveness and the allowance of gift funds to be used in purchase transactions. Eligible borrowers can accept gift funds from any immediate family member to help bolster both down payment and other necessary monies. Credit does not have to be squeaky clean or without past smudges.
Check out the FHA's website, FHA.gov, for information on FHA-backed loans, as well as foreclosure avoidance counseling, HOPE for homeowners program notes and a list of FHA/HUD homes. HUD homes are properties which have been foreclosed upon and are now being sold (most often) at below market prices.
Do not cancel any already established credit lines prior to applying for your mortgage loan. Banks like to know that you have sufficient trade lines, are able to make the payments on time and are also willing to live up to the original terms of the agreement. Closed credit lines suggest the consumer is willing to walk away from already established credit obligations, which is not the message you want to convey.
- Do not cancel any already established credit lines prior to applying for your mortgage loan. Banks like to know that you have sufficient trade lines, are able to make the payments on time and are also willing to live up to the original terms of the agreement. Closed credit lines suggest the consumer is willing to walk away from already established credit obligations, which is not the message you want to convey.
Linda Y. Walters is a published author of five romance novels and an accomplished photojournalist who travels the world in search of the best in jazz festivals, vacation resorts and fine dining experiences. As a seasoned mortgage/real estate professional, she also contributes regularly as a newspaper columnist in Florida and New York City on current and ongoing financial trends.