Owning a home is a major achievement and a great accomplishment. Lighthouse Funding Group wants you to understand the steps that are involved in order to reach this achievement. Here are some things that lenders usually will look at to help them decide whether or not they approve an application.
A steady job history
A lender will need to know a person's job history. It will be a major factor in whether a person qualifies for a loan. Consistency and continuity with job employment is preferred, However a person does not have to have held the same job for two years in order to be approved for a loan. Job transitions that result in equal or more pay and continue to use proven skills are a plus.
Paying bills on time each month
How a person pays their bills in the past provides a lender some indication of how they can be expected to pay them in the future. When a person applies for a mortgage, theory will be asked to list all their debts, the amount of their monthly payments, and the number of months or years left to pay on their debts. Once a credit report is obtained, lenders will have a better view of a person's payment history.
A lender will review a person's credit report to verify the information that they provide and to check on how well theory have kept their promises to pay their debts. If they have never had credit cards or taken out a loan through a financial institution, the various credit reporting firms may not be able to issue them a credit report. In that case they may be able to use a “nontraditional” credit history. For example they may be able to provide documentation that they pay your rent, car insurance, or utility payments on time each month.
Paying a monthly mortgage
If a person pays rent each month without difficulty, they may be prepared and ready to make monthly mortgage payments. The amount of a monthly payment depends upon the amount borrowed, the interest rate, and the repayment period or “term” of a loan.
How Much Can I Get Approved For?
Whether you are buying a home or refinancing your existing one, there are many options available to you. Lighthouse Funding Group stays abreast of changes in the industry and is knowledgeable and trained in the various complexities of each loan type. As a general rule the majority of lenders do not want a borrower’s debt to income ratio (DTI) to exceed 50%. This means that a person's total debt (including: Housing, Auto Loans, Student Loans, Revolving Credit, etc) shouldn’t exceed 50% of Total Gross Income.
Here is the typical method to document income
– A full documentation loan is the most straightforward documentation type in the mortgage process. There is no flexibility and no exceptions. Any figures on your application must be proved true. If you are obtaining a mortgage, be prepared to provide the following information:
- One full months of recent year-to-date pay stubs
- Your last two years of W2 forms
- Your last two years tax returns if self-employed
- Your last two months bank statements, and/or statements from other asset accounts (including savings, 401K, IRA, other retirement accounts, cash value life insurance, stock, bonds, etc.)
- Your lender/broker will obtain a verification of employment and potentially other verifications depending on the documentation you provided
What Type of Mortgage is Right for Me?
There are many different loan types and options available to you. Not every type of loan suits every borrower, so it is best to learn about all of the options available to decide which loan type is right for you. The loan officers at Lighthouse Funding Group can help you make an educated decision on what is best for you. Here is a brief overview of some of the most popular programs available.
Fixed Rate Mortgages
– Fixed rate mortgages are one of the most popular loan programs available today. A fixed rate offers the security of knowing that your monthly payment will remain the same throughout the life of your loan. Fixed rate mortgages can range from a 10 year term all the way up to a 30 year term. In some cases, 40 year term mortgages are available. The longer the term of the mortgage, the higher the interest rate will be. The most common fixed rate mortgages are 30 year, 20, year, and 15 year. The 30 year comes with the highest rate, but offers the lowest payment due to the length of time that you are borrowing the money. At the Lighthouse Funding Group, we are able to offer you some of the most competitive fixed rates on the market today.
Adjustable Rate Mortgages
– The term “adjustable rate mortgage” is a little misleading, and leads potential borrowers to believe that there is no security offered. This is very far from the truth. An adjustable rate mortgage (ARM) offers a fixed rate for the first 1, 3, 5,7 or 10 years of the loan, and then after the fixed period, the rate can adjust usually once per year. After your fixed rate period is over, you loan becomes a true adjustable mortgage. What that means is that, once per year, your interest rate will change based on what rate the index your loan is tied to is currently at. The bank then adds the value of your index to what is called a margin. The margin is an arbitrary number chosen by the bank (usually between 2% and 3%). The sum of these two rates is your new rate for the next 12 months. There are interest rate caps built into these loans to ensure that if rates do go up substantially, you will not be crippled by the new payment. Most borrowers who apply for these loans only keep them for their fixed period, save a large sum of money over that time, and then refinance. The benefit of such programs, is that you are able to get a fixed rate at the beginning that is lower that than a 30 year fixed rate, and the interest savings can be significant. Most first time home buyers do not stay in that property much longer than 5 or 6 years. Generally, someone purchasing a home for the first time buys a small single family home or condo that they quickly outgrow as they have children or, due to increases in salary decide that they can afford a larger home. Also keep in mind that very few people keep their first mortgage for the life of the loan. You may decide to refinance your loan to pay off high interest credit card debt or to do some home improvements. Adjustable rate mortgages are usually amortized 30 years.