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Owning a home is something most people aspire for. When thinking about possibly purchasing a home, you
should understand that in order to purchase a home you will have to qualify for a loan. The lender will closely look at
two factors when consider giving you a loan. These include your ability to pay back a loan and the likeliness you will
pay back the loan.
Your Ability To Pay Back A Loan:
When examining your ability to pay back a potential loan, the lenders will look at your employment
history and income. The lender will look to verify that you have been working continuously at the same job for at
least the last two years. If you have recently changed jobs, but are still working in the same line of work, the
lender will consider you to have steady employment.
The lenders will also look at your current income and expenses. Specifically, they will look at
two ratios. The first is called the "front-end" ration, which is the ratio of your project monthly housing
expense to your gross monthly income. The other ratio is called the "back-end" ratio. This is the ratio of your
total monthly debt to your gross monthly income. Lenders typically look for a "front-end" ratio of between 28%
to 33%, and ratio of between 38% to 45% for the "back-end" ratio. There are definitely exceptions to these general
numbers, so it is wise to discuss your specific situation with a loan consultant.
Examining The Likeliness You Will Pay Back The Loan:
Job History:
Lenders will order and review your credit report. This information will help them determine your past history of
paying debts, which will give the an indication on your ability to pay a future loan. Besides providing insight
into your payment history, the credit report will also indicate if you have filed bankruptcy. Most lenders prefer
that you have waited two years after discharge of a bankruptcy before obtaining a home loan (there are exceptions).
Credit History:
The lender will order a credit report to determine how you have paid your bills in the past. This information gives
them an indication on your ability to pay a future loan. The credit report will show the amount your current debts,
the amount of your monthly payments on those debts, and how long you have left to pay on them. The report will show
your payment history on these debts and past debts. It will also indicate if you have filed bankruptcy. Most
lenders prefer that you have waited two years after discharge of a bankruptcy before obtaining a home loan (there
are exceptions).
It is a good idea to check your credit report on a regular basis. It is not uncommon that mistakes
are made, and they can have a negative impact on your credit score. If your report does have errors, you can have
them corrected. If you have a dispute about something that shows up on your credit report, you can contact the three
credit reporting agencies (have link for popup with names and contact info).
The home mortgage business has become very diversified over the years. As a result, the guidelines
for credit scores, income levels, and employment history have also different from lender to lender. You should talk
with a loan consultant to discuss your specific circumstances.
To help you with your decision to buy a home, we have provided several worksheets. Please feel free
to download them. If you have any questions, or would like further information on loan or getting pre-qualified,
please feel free to contact us.
Budget Worksheet
Loan Application Checklist
Loan Pre-Qualification Questions
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