Financing a Home

For those readers considering the purchase of your first home, it is important to be aware of what steps must be taken in these difficult economic times. In order to use your time wisely, connect with a lender before you step out the door to begin a serious search for the property that is close to your idea of a dream home.

You need to check your financial picture in the following areas as they will be carefully scrutinized by the mortgage company to determine your eligibility for loan approval:

• Job history/current income
• Current debts/debt to income ratio
• History of debt repayment
• Credit score
• Available cash – savings account, checking account, stocks, bonds, investments, etc.

If you are working at a salaried employment, the time spent at your current job as well as in past jobs is a factor in determining your work stability. Have you spent a reasonable period of time in each work place or do you move from job to job? If you have a good employment history and good income, the lender can be fairly sure that you will choose to stay on your job, and have the ability to make regular mortgage payments.

Under these uncertain economic conditions, you might consider asking your current employer for a letter of recommendation to show the mortgage lender, stating that you are a valued, responsible employee and that there are no plans in the immediate future for you to be discharged.

For those individuals who are self employed, the lender will require copies of Income Tax Statements for the past two or three years to determine ongoing financial stability. Similar proof of income would be required if you receive commission instead of a weekly salary.

If you have had a court judgment for an unpaid debt in the past and have not taken care of this obligation, now is the time to try to clear this amount as it will seriously count against your credit rating. If you can pay the debt at this time, request a letter from the collection agency stating it has been paid in full.

The lender will also require savings account and other investment account statements to ascertain that you have enough money to continue making mortgage payments in case you lose your job.

Another important factor considered by the lender is the amount of your debts compared to your income. If a very high percentage of your income is used to pay your debts, that will count against your being approved for a mortgage.

If possible, pay off as much of your credit card balances as you can to improve to debt to income ratio.