Spring fever has set in and that means buyers are out in full force looking for homes to buy. If you are a buyer, you have to know how much you can afford.
Unfortunately, I often find that buyers think they can afford more than they are able to. Sure, you can find all sorts of calculators online to run your numbers, but until a lender actually reviews your case, you really don’t know the bottom line. So it’s a really smart move to let a lender look at your entire financial picture and tell you what you can afford or how you can improve what you can afford. After all, you don’t want to encounter some of these unwelcome scenarios.
Mark McDonell of Eagle Home Mortgage offered these tips for buyers about what they should be careful about when getting ready to apply for a home loan.
- Credit Check – Your credit score is a major factor in getting a loan. If your credit is too low, you may not even qualify for a loan. Your interest rate may end up higher if you have any credit issues, which will impact your monthly payment. In some cases, a lender may recommend a rapid rescore to help raise your credit score, which will score you better mortgage rates!
- Debts – Things like car payments and student loans are monthly obligations that eat into your debt ratio. Lenders pay attention to your debts and once you add a mortgage to it, you could exceed the amounts that the lender will allow. By talking to a lender, you may find out that it is more advantageous to pay off a car loan prior to financing a mortgage.
- Steer Clear of Financing Big Ticket Items – I can recall one escrow that was delayed because the buyer decided to buy an engagement ring just before closing. Anything that needs to be financed should be postponed until the home sale is complete. This includes car, furniture, appliances, etc.
- Cash Deposits – Your bank statements are going to be scrutinized when you are going through the loan process. Anything you deposit to the bank is going to need an explanation and could prove problematic if it cannot be easily sourced or is a gift. Gift funds need to be treated with caution and the lender needs to know about them and cross their T’s and dot their I’s on everything. So it is best to not make any cash deposits for 60 days before applying for a loan (and going through the process).
- Employment – This could be a full article in itself but there are two things I want to stress here. One, don’t change employment close to the time you are applying for a loan or during the process (without consulting with your lender). And two, make it perfectly clear if you are self-employed. Loans for self-employed individuals and the differentiation between business income and personal income can cause a lot of confusion.
So before you start setting yourself up for a big letdown, before you even start looking at homes, it’s really important to start with setting yourself up for success. You can do that by talking to a lender.
By Holly Schwartz
Holly Schwartz is a realtor with Villa Real Estate who lives in Newport Beach and has been featured on HGTV’s “House Hunters.” She can be reached at HSchwartz@VillaRealEstate.com.
