Written by: Mohamed T Gulamali Understanding what the bank cares about: The bank looks chiefly at 3 things, what I like to call the financial trinity which is comprised of: Credit; Income & Assets. Credit is like your resume, it’s your track record of paying off your debts on time. Assets reflect your money management skills Income reflects your ability to repay the loan.
Ideally, you want the credit to be a 620 or above the higher the score the more likely the better your interest rate will be. Scores under 620 can be done but the terms or horrendous so it makes sense to begin the process with a better score. Your first is your first point of action is to obtain a credit report that is a soft inquiry such as www.annualcreditreport.com. Review the report for any errors. Next, identify any negative items & call the creditor to request them to delete the item, it’s worth a shot. Lastly, you want to bring your balances between 11-30% of that debt's high credit limit. This can be done by either paying down the balance or requesting an increase to your high credit limit for that account. A better score will save you quite a bit in the long run Due to the patriot act, the bank will require a paper trail of funds used pre-dated to one statement prior to the contract. Cash breaks a paper trail so if you will be using cash deposit it now before you find your dream home and go into contract. If you're transferring funds from account to account do it through: a wire; a check or a transfer. If you have a 401k call them and ask them if there is a penalty if you are withdrawing money specifically for the down payment of the home that you will live in, they are going to want a copy of your contract so contact them once your offer is accepted 3- Income: The most important part of the financial trinity is the income because unlike assets & credit there is no room for adjustments. The first thing you should do in regards to your income is gather your documents: Tax Returns & W2’s for the most recent 2 years; Paystubs for the most recent 30 days; Statement where the down payment is coming from. You should also make a copy of your driver's license as well. Gathering these documents at this time will make the process a lot smoother. Banks lend based on risk & are not in the business of making risky loans so if they extend a mortgage to you they have assessed your risk and are comfortable that you will be able to make the payments on time. You may have a different comfort level than the bank so I advise you to take a pen and paper and figure out a rational monthly payment you are comfortable with every month. Share this number with your loan officer and your realtor so that your house hunt is more effective and focused. 4- House Hunting: This is the part that everyone seems to love, till they don't. In order for your Realtor to have an idea of what you want you would have to know what you want. Write down a list of your wants and needs in a home and grade them from a one to a five for importance, this will help you avoid the goldilocks syndrome that plagues many renters. If you graded everything as a five then you definitely have expensive taste which is fine but be prepared for expensive payments. A dream home might not be a viable option for everyone at this specific time in this case I would suggest starting with a starter home. 5- Your Team: The team you choose will be an integral part of your journey. If you want a circus hire clowns. I suggest assembling a home buying team of a local: loan officer; realtor and attorney. When making your decision ask a lot of questions, read their reviews from previous clients, and simply ask people that had a positive outcome for a referral. Be wary of “the nice guy” that always tells you what you want to hear, he’s not your friend and might not be completely upfront with you. I truly hope this information has been helpful and happy hunting. Written by Mohamed T Gulamali
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