Most people realize this is an incredible time to buy a home.   Buying a home is a major milestone in most people’s lives.  How do you put yourself in the best position to make that dream a reality?

There are a few things to be prepared for in terms of getting a mortgage.  Lenders will review your credit, employment, income and assets.

Check out your free credit score with one of the online services or call us to get an idea of where you stand.  We generally want to see at least a 640 credit score and no more than one late payment of over 30 days within the last 12 months.  Take a look at your credit card balances.  If they are more than 30% of your total credit allowed then you need to have them paid down.  The first reason is that this has a significant impact on your overall credit score.  Secondarily, if you are carrying a large percentage of non-tax advantaged debt you should consider putting a plan in place to reduce those balances before getting a mortgage.

Lenders like to see consistency in your employment with at least two years in the same line of work.  Why is this a concern?  If you have a little job security then you are a risk of losing your ability to pay for the mortgage debt.  If the economy has caused you to move around within your field in the last two years but you are consistently employed at the same income level you should be ok.  Large and/or unexplainable gaps in employment may add to the scrutiny in terms of getting you approved.  If you are considering a career change or think there is a chance that your employment may change, you may want to rent while you are waiting out the changes.

Lenders allow 29% of your gross income when they qualify your mortgage amount.  This percentage is for your principal, interest, taxes and insurance on your potential home.  Having a consistent two year history of income is the easiest way to be approved.  If you have additional income like overtime, child support, etc. it needs to be a consistent two years in order for this to be added to your overall ratio.  Generally, your consistent base salary is going to set the tone for your approval.

Assets determine your ability to pay a down payment or pay for closing costs.  Even if you are using a no money down loan and having the seller pay your closing costs, having the assets available make it so that you aren’t limited to one product over another.  Also, the assets are considered reserves.  This means that if you lose your income due to injury or job loss, how many months could you survive?  This isn’t necessary to have but creates much less scrutiny as well as flexibility with your allowable ratios which could make the difference in getting the house that you desire.

Lastly, be prepared for a longer closing time.  I have closed loans in as little as eight days and have seen a general cycle at around 30 days.  However, there is a significant increase in the scrutiny on buyers and the homes to be purchased.  Combine this with the huge volume of people refinancing at every lender due to the low interest rates and you are now looking at a 45 and sometimes 60 day cycle.  If time is important to you, don’t delay your decision to move forward.

Not sure if you’re ready yet?  Give us a call.  We will review all four factors in qualifying for a mortgage with you and give you tips and time lines if you aren’t in the best position yet.  The process takes very little of your time and we are always happy to help you achieve home ownership.