Buying a home

Are you ready to buy your first home? Focus on what you might be comfortable with for a monthly payment, including homeowners insurance and real estate taxes and then get a mortgage loan pre-approval based around that payment amount. That should give you an idea of how much of a home you could afford.

For the best rate, you'll need good credit plus some savings for a down payment. Do not clear out your account for the down payment - you'll need cash for incidentals such as touch-ups or painting, moving expenses, closing costs, etc.

To obtain a mortgage loan pre-approval (or get more than one to be safe) just contact a lender (just FYI - I finance in all 50 states.) Don't worry about more than one lender pulling your credit if it's within a 1-2 week period - that'll be treated the same as only one lender running your credit.

Lenders will look at the 3 Cs (sometimes called the 4 Cs or more) - CASH, CREDIT and COLLATERAL.

Cash refers to your cash flow in and out. How much do you earn? Do you have a reliable history of earning income? Are you just starting out in a field for which you have a college degree? Are you self-employed with 2 or more years of experience? These are all questions that will be asked to determine how much of your income could be used on the mortgage application. Often all of your income is considered but not always - it depends on the source and how long you've been receiving it. Then your recurring monthly debt - cash going out for liabilities - will be factored in. Payments for closed-end loans that will be paid off within 10 months will be overlooked. All other payments are essentially snapshots of your credit balances over the past month. Generally adding a cosigner doesn't help with income except for FHA or some MyCommunity mortgages

Credit refers to the information on your credit report - how well have you been doing paying debt on-time? Are you close to your limits? What are your typical minimum monthly payments? Some pay off their credit cards every month but that's still a payment. High or low scores can be misleading - lenders also look at the information within the report.

Collateral refers to your down payment. In the case of a refinance, it's the equity you have in the property. At least some of the down payment generally needs to be your own money so be sure to keep good records of bank statements, etc. to document where the money came from.

I hope that this helps -shoot over any questions. I have a booklet on buying your home I can e-mail.

Tom
Thomas J. Stevens, Loan Officer, Flagstar Bank
Financing in 50 states
Thomas.Stevens@Flagstar.com