Your Work History
- Have you been steadily employed for the last two years?
- If you have recent gaps in your employment history, what caused them?
- If you changed jobs, did your pay match or exceed the pay from your old job?
- Has you income fluctuated during the last two years? Why?
- Do you pay your bills on time?
- Do you carry large balances on your credit cards?
- Have you ever defaulted on a loan (including your student loans)?
- Have you obtained copies of your credit report directly from all
three of the companies that collect the data lenders depend on? The
companies are Equifax, TransUnion, and Experian (formerly known as TRW).
- What do your credit reports say?
- Are your credit reports accurate?
- Are there items on your reports that a lender might deem unfavorable to you?
- If you currently have loans you owe, do you send in the monthly payments?
- If you have long-term loans, how long do you have to pay them off?
- Do you pay your rent on time?
- Have you every had property repossessed?
- Have you ever had a bank foreclose on your house?
- Have you ever had a creditor turn your account over to a collection agency?
- Has a court entered a money judgment against you that you haven't paid?
- Have you ever filed a bankruptcy petition? How long ago?
Have you been saving money for your down payment and closing costs?
- How much have you saved?
- Are you setting aside money on a regular and consistent basis?
TIP: You could save your money in a financial account that pays more in interest than a regular savings account and your money will grow faster.
TIP: Your employer may have direct-deposit options for you, and you could designate a set percentage of your check to be deposited directly into your down-payment account every time you get paid.
How Much Can You Afford?
Lenders have legal limits on how much money they can lend you, so you need to have a good understanding of where your dream home fits within those limits. The amount a lender can lend for a mortgage depends on how much you earn and how much you spend each month.
- Lenders look at the total amount you pay for housing each month, add costs like property tax, insurance premiums, and any homeowners' association fee and compare it to your monthly gross income. They generally try to keep the amount of the loan low enough so your monthly housing costs do not exceed 28 percent of your monthly gross income.
- Lenders also look at your other long-term debts, such as your car loan, student loans, credit-card debt and the like to see what other monthly payments you have to make. They add these monthly costs to your monthly housing cost, and compare the total against your gross monthly income. These two kinds of costs taken together should not exceed 36 percent of your gross monthly income.
- If your gross monthly income and your debts exceed these two guidelines, you'll need to adjust your expectations. You will need to decide whether to wait until your cash flow improves and your savings are larger, or whether you should set your sights on a lower-priced house.
A smart buyer starts shopping for a loan before he or she starts looking for a house, and certainly before making any offers! Being pre qualified means that a lender has looked at your finances and credit history and has decided that you can get a loan, and how much you can borrow.
- When you're prequalified, you may speed your search for your home because you will be able to focus on homes in your price range.
- When you're prequalified and you find your home, you will be able to make an offer you can stand behind. People who aren't prequalified make offers contingent on getting a loan. If you were the seller, wouldn't you rather work with somebody you know can get financing?
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