Congratulations, you have taken a big step and decided to become part of the American dream of home ownership. So what are the ABC’s steps to the Real Estate Financing? The “A” stands for access and review your credit history prior to starting the mortgage pre-qualification process. Contact the three major credit bureaus;
Equifax 1-(800) 525-6285
Experian 1-(888) 397-3742
Trans Union 1-(800) 680-7289
Ask the three major credit bureaus for your credit history report with your FICO score. There will be a small fee for this service. FICO scorces will range from 300 to 850. If your credit FICO score is below 700 you will be paying a higher mortgage payment.
The following is what your monthly mortgage payment on a $300,000 mortgage loan would look like on a 30 year, fixed rate mortgage. The source is MYFICO.com, INFO Research Services this is as of February 24, 2009
FICO SCORE Monthly Mortgage Payment (APR) Mortgage Rate %
760-850 $1,560 4.720%
700-759 $1,600 4.942%
680-699 $1,632 5.1190%
660-679 $1,672 5.333%
640-659 $1,753 5.763%
620-639 $1,859 6.309%
Notice dear readers that there is a corralation between the lowest mortgage payment of $1,560 to the highest mortgage payment of $1,859. Now you can see the importance of acessing your credit history and take the steps of reviewing and repairing your credit report.
“B” stands for begin to gather your supporting documents for your mortage application. Start with keeping a copy of your last paystub for the prior year of your mortgage application. Keep the two most recent pay stubs available. Keep the last two years of your tax returns all pages. Keep two years worth of bank statements all pages. Keep your most recent quaterly statments from your employers retirement savings account, Keep two years of cancelled checks paid to your landlord, if you do not have an extensive credit history, keep your utility bills that you paid such as phone bills, cable bills, electric bills.
When you are shopping for the best mortgage company a mortgage rate, tell the loan office the following information prior to giving your permission to pull your credit history; Tell them your FICO score, your monthly gross income, your monthly mortgage payment or rental payment, your monthly auto loan payment, credit card payments, student loan payments and the approximate balances to those debts.
The process to determine how much of a monthly mortgage payment that you can afford is called a mortgage pre-qual. The formula to determine how much of a mortgage you can afford is the following. The monthly cost to own a home includes, the mortgage payment, property insurance, and property taxes. The industry calls this formula (PITI). That cost should not exceed 28% of your gross monthly income.
The 2nd part of the fomula is your debt to income ratio. The monthly cost of your credit debt should not exceed 36% of your gross monthly income.
To figure out how much of a down payment you need to pay out of your pocket, will be determined by the type of mortgage loan programs that you qualify for. For a conventional home mortgage loan for a primary residence the current guidelines call for a down payment of 10%. If you qualify for a government (FHA) home loan your down payment will be 3% After you have completed the home inspection and signed the purchase and sale for the home. You can then formally apply for your mortgage application. An additional step to take will be to order a property appraisal from an appraisal company. What that will do is to determine your Loan to Value (LTV) of your mortgage application. This is a very important step in the process. The appraisal will determine which loans you can qualify for and wither or not your mortgage application will be approved based upon the underwriting guidelines.
“C” stands for mortgage loan closing. That is where you will receive the keys to your castle. Where you will be signing away a whole stack of documents called the mortgage note and the mortgage deed. The author has been in the mortgage, real estate field for several years, and is also a landlord. For more information so the authors About me page.