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Can you obtain the financing necessary to purchase a home?
The first thing your Mortgage Professional will do for you is Pre-Qualify you . The Pre-Qualifying process is a process by which your Loan Officer reviews your financial make up and determines what your loan amount will be. You loan amount and your downpayment funds will add up to your purchase price.
There are two main considerations that your lender will review prior to lending you money: your willingness to repay and your ability to repay the loan.
Your Willingness to Repay
The review of your willingness to repay is based on your credit history. To obtain conventional financing you will need to have what some people call "A" credit. As credit scoring becomes more prevalent in the approval process lenders will gain the ability to put a numerical figure on your credit. Generally if your credit score is above 620 your credit will be acceptable and if your credit score is above 700 you may even avoid having to produce much of the documentation usually necessary.
Things that reflect positively on a credit score:
* No 30 day late payments in the last 12 months
* A low percentage of your credit used
* Paying off your credit lines monthly
* Loans paid on time or early
Things that reflect negatively on a credit report
* Recent late payments (late payments within 12 or 24 months
* Charged off loans or credit cards
If charge-offs occurred longer than 24 months ago and you have maintained good credit from that time on, you may simply have to pay off the debt to obtain your home financing.
* High percentage of total credit used
If you consistently keep your credit cards maxed-out your credit score be will negatively effected. In the past (prior to credit scoring) most borrowers were advised to consolidate debt to just a few cards thereby reducing the minimum payment due. In today's credit scoring environment the opposite is true. One is better off keeping more credit lines going with low balances.
* No credit
Many people do not believe in borrowing and therefore do not get credit cards. While no credit is better than bad credit it is advisable to obtain one or two credit cards, use them once a month and pay off the balance monthly avoiding any finance charges. This not only will improve your credit score you are able to keep your dollars in the bank earning interest until the payment is due.
Your Ability to Repay
Your ability to repay refers to your ability to pay for the new home. The last thing that a lender wants to do is foreclose on your home. The time and expenses incurred in a foreclosure proceeding far outweigh the gains in most cases.
Lenders generally do not want someone's housing expense to exceed 33% of their gross monthly income and do not want their total debts, including their new housing expense, to exceed 38% of their gross income.
Your Mortgage Professional will review your income and debts in detail with you to get a clear picture of your monthly cash flow. It is highly recommended that you tell your loan officer everything. When it comes to verifying your income and debts your lender will be thorough so it is important that your loan officer has all the facts so he/she will be able to advise you on the appropriate program.
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