Friday, July 27, 2018 / by Thea Limon
You’ve decided it’s time to find your dream home in Lake Arrowhead. Congratulations! When a buyer is looking to purchase with a loan, the best place to begin is to see what the buyer qualifies for. It’s easier for you and the local Realtor that you work with. They will zero in on the homes that fit your budget and go from there! No one wants to be a Lake Arrowhead home buyer who falls in love with a house but later finds out that they can’t afford it. Don’t let that happen to you. Go to a trusted lender (an experienced Realtor will have suggestions) to find out your price range. Lake Arrowhead, CA is a little different when it comes to real estate. The best piece of advice anyone can give a home buyer is to stay local, that includes the lender that you choose.
A question that a lot of people ask is what is needed to qualify for a mortgage loan? Before we get into that, let’s start with the basics of a mortgage loan. A mortgage loan is approved by a lender, which is normally a bank. They lend you money to buy the home that you have to pay back in payments. The larger the down payment, the smaller the monthly payments. Until the loan has been paid back in full, the lender will hold your house and land as collateral in case you’re unable to pay back the amount you borrowed.
Credit: You may be wondering why credit is so important for the mortgage process. Think of the process as if you were the one loaning money out to your friend, would you feel comfortable giving money to someone who typically pays back their debt or rarely ever does? Lenders are you in this situation. They want to know that the person they are lending money out to will pay back what they owe.
According to NerdWallet, “Your credit score is calculated most often with the FICO scoring model and is derived from the information on your credit reports, which are compiled by credit reporting companies. Your reports include a history of your payment habits with borrowed money.” To be pre-approved for a loan, a lender runs the borrower’s credit report. Don’t confuse being pre-approved for being pre-qualified. Being pre-qualified doesn’t hold as much weight as being pre-approved. Lenders don’t run your credit score to see if you are qualified, they go by what a person says their income is.
An experienced local Realtor will suggest that you become pre-approved before starting your home search. Being pre-approved is the way to get a mortgage loan and to become pre-approved, your credit score has to be high enough to show the lender that the borrower can pay back the loan.
Down-payment: Many first-time Lake Arrowhead home buyers worry about the amount they will have to come up with as a down payment, but thankfully, it might not be as bad as you thought. Be prepared for 20 percent of the price of the home as the down payment. Sometimes, you can get down to 10 or even 3 1/2 percent, but the less you put down means the further away you are from owning your house outright
A mortgage loan accrues interest, the interest can cause you to have to pay a lot more in the long run. If you’re able to pay more in the down payment than the typical amount, it’s suggested that you do. Of course, if you can’t then that isn’t a bad thing either. You can pay off the interest by paying a bit more than your minimum payments like you would with a credit card.
Debt-To-Income Ratio: The Debt-to-income ratio is calculated by dividing the total of all your monthly debt payments by your gross monthly income. Once you know this number, it will be easier for you to know what you may be able to qualify for. Lenders use this percentage to help figure out what you will qualify for based on research that has shown people with higher DTIs have a higher chance of struggling to make their payments. A DTI that is below 20% is considered to be excellent.
Good news is that your debt-to-income ratio does not affect your credit scores. That is different than the amount of credit you have used when it comes to your credit limits. For example, if you have a credit card that has a $10,000 credit limit but you have spent $9,000 of it, that will affect your credit score, and your DTI ratio since your monthly payments will be higher compared to a card that hasn’t been used as frequently.
Every lender is different when it comes to the DTI percentage they will accept. As a good rule of thumb, lenders will typically accept a DTI of 43% as the highest, but there are personal loan companies who will lend to those who have 50% or more. The higher the ratio, the lower your chances are to qualify. When you find yourself with a high DTI, you may want to focus on paying down or off some debt before trying to qualify for a mortgage loan. One more extra tip is to make sure you have all your paperwork ready to go!
According to Carrie Michelle Mandel with CrossCountry Mortgage, Inc, “One of the most important items with a new home purchase is having your income and asset information well-organized. Lenders require two years W-2s or sometimes tax returns if you're self-employed and two full months of bank statements showing that the money for the down payment has been seasoned.
Being prepared makes for a faster closing.” Knowing what you will need to have prepared will provide you extra time finding the home of your dreams in Lake Arrowhead Lake! Now that you know the important aspects when it comes to qualifying for a mortgage loan and have looked into getting pre-qualified, it’s time for you to find an experienced Lake Arrowhead Realtor that will make the home buying process easy as well.