subject: First Time Home Buyer Application [print this page] First Time Home Buyer Application First Time Home Buyer Application
Buying your first home can be a very exciting experience. It can also be a frustrating one if you don't have all the information necessary to make the journey a smooth one.
Unless you're paying cash, you will be asking a mortgage company or bank to lend you money to finance the purchase. The lender wants to lend you the money, that's how they stay in business but they also want to make sure you will repay them so they are going to carefully examine your current financial situation to determine if you can and will pay them back.
In an effort to clear up some of the misconceptions about the lending process, this is the first of four articles on what lenders look for in a loan application. I'll try not to be over technical and load the articles with "mortgagese".
Broken down to its most basic elements, mortgage companies try to determine if you have the ability and willingness to repay the thousands of dollars they will be lending you. They will make this determination by reviewing your current financial situation as well as analyzing how you handle your other credit obligations.
The four areas your lender will be reviewing are:
Credit History
Asset
Income
Reserves
If you can picture a chair around your dining table. It likely has four legs and it takes all four legs to be a chair that you would feel safe sitting on.
You loan application is very much the same, each leg of the chair must be able to carry it's share of the weight, so the chair won't collapse.
The current mortgage meltdown has caused lenders to use a little "extra glue" to make the chair sturdier these days. So it's important that you know how to build your chair the right way, so it will hold up for 30 years.
The first leg of the CH-A-I-R is Credit History. To put it simply a lender is going to evaluate your "willingness to repay" by how you have managed the other areas of your credit.
I've heard so many times "But I have good credit!" You can't sit in a chair that only has one leg, so even if a lender is confident you're willing to pay them back, if you lack the ability (employment history or lack of a down payment) you're not likely to be approved for your first time home loan.
Credit History is more than the number of your FICO score. Lenders try to determine your willingness to repay based on how you have handled your credit over time. A lender is going to be most concerned with you most recent two year history. Even if you had a few rough spots in the past you may still qualify if you have righted the ship and the most two years demonstrate a good history.
Creditors, some more than others, are more concerned with getting their money than they are correctly reporting, so if you have items on your credit that are legitimately being reported incorrectly, work on getting them fixed BEFORE you decide to buy your first home. If you're willing to put in the time and effort, you can get the corrections made yourself. If not there are companies that will do it for a fee. But be careful, many of the fixes they promise may never happen or are only temporary and will reappear 30 days later.
