Buyer’s Guide

Advantages of Home Ownership

A Place of Your Own:
Homeownership allows you to settle down and become part of a community. As a homeowner you have the potential to make a real difference in the area in which you live.

Sound Investment:
Buying a home is one of the best investments you can make. Homeownership is in a sense a scheduled savings plan. Each monthly payment reduces your loan balance and you build equity in your home. Equity is the difference between the value of your house and the amount you owe on your loan. If properly maintained, homes typically increase in value. As your home’s value increases, you build additional equity.

Stable Housing Cost:
While rent payments generally increase year after year, your monthly payments will stay the same on most mortgage loans for the term of the loan. This enables you to budget and plan for the future.

Tax Benefits:
Most homeowners realize significant tax benefits from owning a home. Your mortgage interest and real estate taxes are deductible and may therefore reduce the amount of income tax you will owe.

Understanding Credit

Credit can be a wonderful thing, but for would-be homeowners, loan approval relies more on your history of debt repayment than on your income or savings. The best way to know if your credit history is clean is to order a copy of your credit record, preferably before applying for a loan. Credit risk is measured by the scoring system created by Isaac Fair. The main criteria and their approximate percentage of importance are:

Payment history (35%)
Amounts owed (30%)
Length of credit history (15%)
New credit – a warning of taking on too much debt (10%)
Types of credit in use (10%)

Lenders use credit scores along with other factors; such as the income stability, employment history, and the value of any collateral and liquid assets, to determine your credit risk.

Do not overextend your credit. Lenders equate numerous credit applications with financial exhaustion. Applying for new accounts actually lowers your credit rating.

Pay down before saving up. Lenders want a track record of responsible debt payment. Make a habit of always paying your bills on time.

Don’t take it to the limit. Lenders are wary of too many credit cards, but it’s also disadvantageous to have accounts which have been maxed out. The idea is to use only one or two cards with medium balances that you punctually pay.

Hold off on purchasing “big toys”. Lenders favor buyers with low debt, so hold off on purchasing a car, boat, or large appliances.

Cleaning Up Your Credit:

If you’ve made late payments in the past, allow 6 months to 1 year of punctual payments prior to applying for a loan.
Pay down installment loans such as car payments.
Lower balances on all credit cards.

Applying for a Mortgage

A Realtor^® can help you compare interest rates and terms to find out which mortgage plan is best for you. We can also refer you to lenders in the area. However, since each buyer’s circumstances are unique, you will want to discuss your case in detail with the lender.

Income: One of the first items a lender will consider is your income. When qualifying you for a loan, a lender will use your gross income – the money you earn before taxes. Many lenders will consider income from a part-time job if you can show you have had the job for at least two years.

Debt: In general, debts include your house payment, installment loans, credit card balances, and child support.

Employment: Mortgage lenders are more likely to lend money to people who have worked for several years at the same job or within the same occupational field. The lender will verify your employment through your employer. If you are self-employed or if you have been at your job less than two years, be prepared to submit federal tax returns.

Credit: Good credit is vital in qualifying for a loan.

However, if you had a:

Judgments or Collection Accounts: These would need to be paid in full prior to the loan application. Any past due accounts must be reconciled.

Bankruptcy in the past: A copy of the discharge will be needed. There must be at least 24 months between the discharge date and the loan application date.

Foreclosure in the past: There would need to be at least 36 months from the time the claim was paid in full.

(NOTE: In the three credit situations listed above, good credit should be quickly re-established.)