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What You Need to Know about Home Loans

Ok you’ve found your perfect home. Now you need to take the right steps to making it yours.

The first step in getting a home loan is to determine your financial and personal positioning for the purchase. These are the two main factors you will need to be concerned with when initiating the purchasing process.

Your financial standing refers to your ability to get a home loan from the financial side of things. More simply put, you need to find out if you qualify for a mortgage from a lender. The two most common factors that often affect or delay the process of your home loan are sufficient downpayment and credit issues. If you can prove to the lender that you have sufficient funds for a downpayment coupled with a good credit rating then you are well on your way to getting your loan for a home or property.

Mortgage programs tend to have a wide selection of downpayment requirements so your first order of business is to determine the amount of your deposit. First review and list all your assets, then determine the most desirable and realistic amount you would like to put down as a deposit on your new home.

Bear in mind that if your deposit funds are limited, the size of your downpayment may affect the purchase price of your home as most mortgage programs have minimum downpayment requirements. Normally 15% of the property value is adequate as a deposit but some mortgage programs may vary.

If you already have significant downpayment funds for the purchase then you are ready to go, if not, then you need to look at other options to attain the funding for a home loan. Your ability to overcome this obstacle will determine when you can put down the required funds for deposit and obtain a home. If you can obtain a loan or a gift from a family member great, if not, you will need to devise a budget and save the funds needed before taking the next step.

Credit issues are another crucial factor that may come into play when taking steps to acquiring a home loan. Bad credit issues are normally divided into two areas: credit problems or too much debt.

Often potential homeowners have past credit issues that affect their ability to obtain a mortgage. Two common items are defaulted student loans and charged off credit and store cards. While these credit issues may not exclude you from obtaining a mortgage they will exclude you from the most desirable and beneficial loan programs available. Therefore it is important to ensure your credit rating is as good as possible.

If your credit profile contains issues such as charged off loans or defaulted credit cards you may want to choose to push back requesting a home loan until you can take care of your credit issues.

If defaulted loans are paid prior to closing they may not affect your ability to obtain a conforming loan. If the problem occurred many years ago, say over three to seven years and your credit has been good since you may only need to pay off the debt. If you do not have the ability to pay off the debt you will then need to look at a payment plan. In most cases entering into a payment plan and sticking to it for 12 months will show your lender that you are a safe risk.

If you have credit issues do not assume you cannot get a loan. The reverse is also true- you should not assume you can get a loan if your credit is good. Make sure you review your credit issues with your loan officer, at the time of application. By doing this you will be able to draw up a letter of explanation and have it presented alongside your mortgage application. It’s much easier to convince an underwriter to approve your loan prior to their underwriting it as it is to change their mind after they've denied it.

If your credit profile shows that you have too much debt to obtain the desired mortgage then you may have to adjust your purchasing timeframe until such time as your debt load does not interfere with your obtaining a mortgage. Sometimes the solution for having too much debt is to simply minimise your downpayment and pay off some debt. If funds are an issue then it may be necessary to budget your funds for a period of time and pay off or pay down your debt load to an acceptable level.

It is important to make sure you review your debts, in full, with your loan officer. He/she will be able to recommend the best plan of action for reducing debt and put you on the right path to acquiring your loan and home.

Once you've determined that you have a sufficient downpayment and acceptable credit profile you have succeeded in laying out your financial timetable, in other words you now know when you will be able to close on the home from a financial perspective.

Happy house hunting!!