Now that reality has hit the US real estate market is, it would be a good thing to review and be ready for getting qualified for a home loan. Unfortunately, you can no longer qualify for a loan just by demonstrating that you can fog a mirror. Future homeowners as well as lenders will be going back to the basics of how loans were approved for the foreseeable future. So what are the basics of a loan application, anyway.

Freddie Mac and Fannie Mae provide guidelines that are followed by lenders. You may find that lenders have added some guidelines of their own as well due to the more cautious lending markets. Lending guidelines generally include: your credit score, your income, the value of the property, and the amount of the down payment.

Credit Score

Your FICO score is the computer model that is commonly used for your credit score. This model is based on your credit history.

Credit history is collected by three credit history providers: Equifax, TransUnion, and Experian. You might be surprised at how much information is collected: your past and present addresses, your phone number, any aliases, your Social Security number, your date of birth, and more. In addition to personal date, into your credit history is also collected data from banks and credit card lenders. Finally, court filings and other public records may be collected and stored in your credit history.

As you may have guessed, the types and amounts of data in your credit history are extensive. It will include almost every charge card, loan, or any other extension of credit you have had. For each loan, past and present, there is the amount of the loan, the payments history, and how much is currently owed.

A vast amount of credit data is maintained and made available by the credit history providers. However, while all of this information can stay in your records indefinitely, federal law requires that any negative information be removed upon request after seven years. From all of this information comes your FICO score which is the first element that a lender will be examining. Before the past few years in which the standards were lowered for loan applications, a score of at least 660 was typically required to qualify for most mortgage loans. If you are told that you need a higher score to qualify for a mortgage at a favorable rate, don’t be surprised, given the current credit crisis. Because of this, it is a good idea to get into the habit of working on a regular basis to improve your FICO score. To improve your FICO score, it is easy to find help to get rid of credit card debt.

Provable Income

The next major piece of the loan guidelines is your provable income. You typically prove your income by showing W2 forms for the last two years as well as your last two paycheck stubs and your tax returns for two years as well.

For those with steady income for the past two years, this is easy to obtain. The proof of income is similar for those that own their own business or that own over 25% of the business they work for. In these instances, you will generally need a copy of your tax returns that indicates your business income.

The Property

The next key part in the approval process is the property you are going to purchase. After all, the collateral used for the loan is the property you are purchasing. Consequently, the lender must be assured of the underlying value of the property in the event that the lender must foreclose on the property. If this unfortunately happened, the lender would be selling the home, so properly assessing its value is essential.

An appraisal of the home is used to determine the property’s value. There are commonly accepted methods to assess the value of a property. This is done by either a professional – either on staff with the lender, or as an independent consultant. For a single family home, usually the appraisal is performed by analyzing similar homes in the vicinity of the property in question. The analysis compares the home being appraised with other homes in the same neighborhood that were recently purchased. An assessment of differences between recently sold homes and the one being appraised is performed to determine the value of the home.

The Down Payment

The specific amount required for the down payment on a home is dependent on the value of the mortgage, your income, interest rates, plus several other factors. Whatever that amount may be, you will need to provide at least two months of bank statements in your loan application. This is done to show that the funds were not recently deposited into your account. The lender will need to be assured that the funds for the down payment did not come from another loan. This includes drawing large sums from one or more credit card accounts and depositing the funds in your checking account.

On the other hand, it may be that someone gives you some or all of the money needed for the down payment. This is often the case, for example, with relatives helping with down payment. If this is the case, you can get the person giving the funds write a letter that states that they have provided money to use for this purpose.

Conclusion

These are the main points that will need to be addressed for you to qualify for a mortgage loan. Because of the current economy, the standards have returned to where they were a few years ago. But if you have chosen a property that matches your financial qualifications, be patient you should be able to find the loan you need.

I hope you find this helpful and if you are ever looking for homes for sale in Denton, be sure to look me up.

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