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It’s an American Dream… Buying your dream home… A home you can proudly call home. However, buying a home can be very difficult because your head is telling you one thing and your heart is telling you another.
So, before you go ahead and consider getting a mortgage to buy a house or flat/apartment or take out commercial real estate loans for building commercial buildings, make sure you research and understand the basics of loans.
First of all, know your personal finances: i.e. how much do you earn per month? What is your household cost (utilities, car payment, student loans, etc.)? Find out your personal goals (do you prefer to travel or participate in a lot of events and social gatherings)? Remember that everything costs money, and if you’re willing to stay home, make the financial commitment to buying, but if you prefer to travel and socialize, buying a home may not be the solution for you. Prioritizing your liabilities will enable you to make a sound decision because what you have left will be paying off the mortgage.
Furthermore, know your credit history or credit score before going to the bank for a mortgage. There are many sites on the internet that will provide you with 3 credit scores so use the internet.
If you’re either a first-time homebuyer or just trying to refinance a mortgage you already have, there are a few things potential homebuyers must do (or at least have) before lenders decide whether you’re worthy of a mortgage from them.
1) What is your credit score or FICO score? This is a very important factor and lenders usually hint at the first factor before moving forward with the decision process. Generally, banks want a minimum of 650 credit score; However, these candidates will pay higher upfront costs and interest costs (if banks are willing to take a chance on this loan). It’s simple…the higher your credit score the better your chance of getting a loan.
2) Potential lenders require job security from applicants – usually for two years.
3) If you own a business, you are required to show documentation of your work history of two years or so; However, you can apply for “No Document” loans. The No-Doc Loan is specifically designed for individuals whose income is not paid through traditional paychecks or where financial privacy is an issue for the applicant.
4) Income … Income … Income. Credit scores aside, some lenders are willing to take out “subprime” loans as long as you can show proof of their income, and as long as their monthly debt payments are at least 41% or less of your total income.
5) Down payment is another important major factor when banks/lenders take a loan decision. Before the housing “crash”, many banks/lenders were making loans to individuals with little or no payments (or a 100% loan). Most banks today require a down payment of at least 10% to get reasonable interest rates; However, if you can lower that 20%, banks will offer great interest rates on mortgage loans.
With all that being said, it can be very frustrating for individuals who are caught in the middle. There are a lot of people with bad credit scores with higher level of income then debt who are trying to fix the problems that they caused or created through no fault of their own in the past.
It’s a vicious cycle… How can you fix your credit problem if there are no lenders/creditors willing to take the opportunity to improve your credit score?
Well… there are a few loans available for individuals with similar issues, but they can come with a hefty price tag. A bad credit mortgage is designed for people who have a bad credit history due to default or late payments, bankruptcy, etc. Contrary to what you might think from loan “bad credit” terminology, the rate of interest on home equity loans has dropped dramatically over the years.
There are few lenders (public and private) that are willing to mortgage bad credit loans, so it is important for an applicant to specifically research or hire competent mortgage brokers to find the best possible mortgage quotes and rates for you.
Just remember…not all lenders are equal, and not all banks are the same. You may get special favors or indulgence from your bank (or small locally owned banks) because you have already established a relationship with them versus the big banks with no personal interest in mind. At the end of the day… it’s up to the bank’s discretion, after you’ve provided them with all the necessary paperwork, to say “yes” or “no”.
