How to Prepare to Get a Home Loan in Summerville South Carolina from Homefront Mortgages

Mortgages today are very complicated. Ever since 2008 the Mortgage Loan industry has been under greater scrutiny and regulation.  The ability of banks to lend mortgages to different classes of credit scenarios seems to be evolving daily.  However, in general there are only 5 categories that a borrower should concentrate on when preparing to apply for a home loan.

The first Category is credit worthiness.  Many borrowers feel that they need to have a high credit score to get a home loan.  The word "high" is a relative term.  The credit score is only 1 indication of a borrower's willingness and ability to repay a loan.  Each lender has their own set of lending guidelines and standards they require before issuing a loan.  In general, the higher your credit score is the lower the interest rates will be.  However, there are definitely tiers for credit scoring. Some banks will not offer loans to people below a 680 FICO score while others will go as low as 550.  Commonly a score lower than 640 will cause a spike in the interest rate because of the perceived greater lending risk of the borrower.  However, a slightly higher rate still may be a better investment that renting.  If a borrower is renting a place to live all of their rent is going to a landlord and building equity in a property for someone else.  Obtaining a loan with a slightly higher interest rate might be acceptable to get into a property.  It is always possible to refinance out of the higher rate loan once the borrower's credit improves.

Secondly, Employment history is examined.  Banks are looking for steady employment for a borrower.  Typically, a 2-year steady employment is necessary.  However, there are exceptions depending upon your credit score and type of loan. But in general, 2 years of W2 income is required.  Self -employed borrowers will have additional information required from them and the bank underwriters will look closely at the health of the business.  In other words, are you making a profit and seem to be growing over the past 2 years.  This is where it is very important to have a professional help you examine your credit situation.

Thirdly, what is the available money for down payment? A conventional mortgage without any mortgage insurance requires a 20% down payment.  This usually works well for borrowers that are selling a prior house and rolling over the equity into a new home.  However, first time home buyers often struggle with getting a 20% down payment.  Luckily there are low money down home loan programs available for them.  Most of these programs are government backed loans such as FHA and USDA loans.  These loan programs require a lower down payment, however the rate can be slightly higher and mortgage insurance may be required. USDA back loans may not require a down payment at all depending upon the property.  There are also specialty loans like VA Loans that have very low down payment requirements.

Forth, Debt to Income Ratio.  There are 2 separate ratios that are looked at when looking at Debt to Income.  These are traditionally called the "Front End Ratio" and the "Back End" ratio.  The front end ratio looks at the current monthly income as compared to the actual cost of the monthly mortgage.  Generally, the front end cannot exceed 31-33% of the monthly income.  The back end compares all of the other monthly recurring debt with the monthly income.  In general, the back end ratio debt cannot be more than 41-43% of monthly income.   There are exceptions for these rules and each bank may have different tolerable ratios for different loan products.  It is very important to consult a loan professional when determining the ratio that applies to the borrower’s situation.

Lastly, what is the value of the property to be purchased? The final appraisal of the property will greatly affect the amount of available loan.  The down payment requirement is directly related to the value of the property.  Appraisals are required to be from third party appraisal companies that bank has approved on their appraisal panels. So it is very important to get the appraisal process going as early in the loan application process as possible

When shopping for a home getting pre-qualified for a loan is always a good idea.  If you contact a lender before you make an offer on a property you can know the loan amount you can afford.  Also a pre approval letter is a very strong addition to an offer for a property.  Most sellers want to know a buyer is able to purchase the property.

A full service Mortgage broker like Homefront Mortgages can help you find the best product with the lowest rates and the best lender.  To get pre-qualified for a home loan contact Homefront Mortgages today for a free consultaion.

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