Loans
Any time you are applying for a loan it's a good policy to get an idea of what you look like on paper. Get a free copy of your credit report from all three bureaus. You are allowed one report once a year for free. Check your report for any accounts that may not be yours and for any problems that could stop you from getting a loan. Collections, Bankruptcies, Judgments, late payments, and any other negative items could cause problems.
With your credit report in hand and an understanding of what is on there you are ready for the next step. You need to figure out how much of a house you can afford.
When buying a new home it's good to have some money in an account. Generally speaking you should have at least two months of the new house payment in the bank. It shows the Lender that you can make the first two payments of the mortgage. It's a security thing. After all, they are willing to loan you 100 thousand dollars or more.
One thing we can't stress enough is NOT to spend large quantities of money, open new credit accounts, shop for cars, or even close accounts you've had for years!
There are a few factors we need to go over. First is income. You can have one person or many people on the same loan. The income from everyone on the loan can be added to the total income. Be careful because their debt will be added also! We will need monthly income before taxes to do this. Last years taxes are a good way to get an average for the year. Just take the yearly income and divide it by 12. Second, we need your monthly bills. Any bills that show up on your credit will be counted, not ones that don't. (i.e. power, water, cell phone, family or friend loans, medical bills, etc. won't be counted.) Add just the monthly minimums not what you pay. If you pay extra, great! For this calculation we need just the minimums required.
Next we need to understand what Lenders look for in a Mortgage loan. Smart lenders won't let you borrow money that you can't pay back. Let's look at how this works. You can only use 45% to 50% of what you make in this formula. The 45% to 50% must include the monthly bill total discussed above.
Here is a basic formula to help you see what maximum monthly house payment you can afford. (Monthly income x 50%) - monthly bills = max monthly house payment.
Total monthly income (before taxes) times 50% minus your total monthly minimum bill payments. The resulting number will be the maximum monthly house payment you can afford.
Once you have these factors understood you will need to have some paperwork handy. Most Lenders require some documentation to get a loan. There are a few types of ways to do this, Full Doc, and Alt Doc. Full Doc is short for Full Documentation and is basically everything that will show your personal financial situation. This can include; bank statements, W-2's, Income tax returns, a copy of Drivers license (or picture ID), any Divorce decrees, Bankruptcy documents, retirement account statements, copies of life insurance policies, investment account statements, and any other financial documents as necessary. For Alt Doc there are two parts, Stated Income Verified Assets- SIVA, and Stated Income Stated Assets- SISA. SIVA you only provide documents on bank statements and other assets. All documents that show your income are left out. SISA very little documentation is required.
Let's go over again what you may need to get a loan. (Some lenders require more, some less. It also depends on the documentation type you choose.)
Full Doc:
- W-2 last two years
- One month pay stubs
- Two months Bank Statements
- Divorce decree
- Bankruptcy documents
- Copy of Driver's License or other photo ID
- Investment statements
- More financial docs may be required
More helpful items:
- Two months of new house payment in an account
- Other savings or liquid assets (You may need to have some cash to close!)
You deserve a home to call your own. Sign up and we will help you find the correct choice.
Loans are a key ingredient to effective credit repair. More often than not, we find that our new members are stuck with loans that can be renegotiated, or even replaced with a new loan that better fits their needs. Learn more about loan types and how Academy Credit can help you find the right loan for you by following the informative links below.
Loans Overview
What are the different types of mortgage loans?
What type of mortgage is best for me?
What do I need in order to get a mortgage loan?
Mortgage loan terms and definitions.
How does my credit score affect my mortgage?
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