Get Mortgage Ready!

First Time Homebuyers may qualify for Government Subsidized Mortgages through FHA (Federal Housing Authority), VA (Veterans Administration), Freddie Mac and Fannie Mae. And that's not all!

Criteria
If you are like most people considering buying your first home, you may have been renting or living at school or with relatives so prooving your 'mortgage readiness' is your first step. And if you haven't owned a home in 5 years, you could still qualify for a FTHB loan because these organizations are mandated to increase personal home ownership.

Free First Time Homebuyer Classes
You may see newspaper notices about these classes, often held at public libraries or the office of a large mortgage lender. They are free and usually take a day or 2 evenings to complete. Keep the certificate you receive as proof because some lenders may give you a discount on your interest rate. The information is very helpful...so do take the course to help prepare yourself for the homebuying experience. Even if you have previously owned a home, things have changed a lot in recent years.

You can also take the course online in a matter of hours! http://www.FreddieMac.com/hrc
Take it in your own time and print out the certificate at the end.

Creditworthiness
You need to be up on credit etiquite about maintaining a good credit rating. To check your own credit withtout causing a 'hit' to your score, visit http://www.annualcreditreport.com/  Naturally, a lender will have concerns and charge higher rates if you have 'no credit' or a negative history. It's much easier to keep your credit score healthy that try to fix it after a fall. Remember: credit scores go down quickly and recover slowly. The higher your score, the better terms you will be offered. Even a few points could mean literally thousands of extra interest paid over the life of your loan. For more on building your credit: http://www.netcredit.blogspot.com/.

Qualifying Income
Your income is key to being a first time home buyer. Two years continuous employment history is standard requirement. You can have several jobs as long as you show a related history. Proving income means keeping your pay stubs, W-2's and Tax Returns . If you are self employed you might want to consider incorporating your business and paying yourself a salary. Talk to a good accountant about these issues.

Scheduled Debt
Credit cards, mortgages, auto payments, student loans, and other outstanding debt payments are all factored into your application as monthly expenses because they are ongoing responsibilities. If your credit card balances are high, those balances will lower the amount you can expect to borrow.

Add your monthly rent plus all your monthly credit card bills (student loans, auto payments, etc) to arrive at your current Debt to Income Ratio. Next, substitute your proposed monthly mortgage payment including property taxes and insurance for comparison. Your Debt to Income ratio will be what the bank will use to 'qualify you'. Conventional loans generally allow a DTI of 33% and some lenders allow up to 49% if you have fanastic credit. Above that (up to 55% DTI) you will qualify in the 'non prime' lending category with higher interest rates.

Borrower and Co-Borrower Qualifying
If you intend to purchase a home with a partner, spouse or parent, all parties must qualify on the loan in terms of credit and ability to pay the mortgage. Some lenders may forgive a lack of credit or lower score for a spouse or partner. Your mortgage lender or bank will advise. In some cases, you can qualify with the rental contribution of a room mate (as income) if a person who has been paying you rent in your shared apartment prior to your purchase and that person is moving to a new home with you. So keep records, copies of checks and banks statements to prove rent was being paid to you, not an outside agent.

Pre-Qualifying
It's a good idea to be prequalified by a bank or broker prior to looking at homes. There are quite a range of Home Access, Home Possible, and Community Loans that cater to the needs of First Time Homebuyers. Some programs offer special exceptions for school staff, healthcare workers and public law enforcement, including firefighters. Even part time teachers qualify so if one party teaches, then you should ask about the possible advantages.

Get prequalfiied early if you intend to apply for any government program because you can expect some red tape and paperwork. For example, the VA will assign their own appraiser so that can take a little longer to schedule. These facts can be annoying to sellers, but with a little forethought and planning most sellers will work with you.

Once you've got a little information under your belt and you are preapproved for the amount you will qualify fo, you're ready to start shopping!

Other Options
If you don't qualify for a Government Loan based on these rather tight criteria, there are hundreds of other options for you with other lenders. Many Zero Down products (blog below) compete favorably with Government Loans with half the paperwork. As a first time buyer your best allies are a smart realtor, a willing seller and a very committed mortgage lender. Whatever you do, work with professionals and appreciate that these people are all working to keep you safe!

Wishing you every credit sanity!
©2006 susan templeton