Shopping for a new home can be a fun and exciting adventure. The anticipation of becoming a homeowner is an awesome thing, but securing a mortgage to buy that new home… not so much. Trying to get the needed financing brings anxiety and apprehension by many buyers. But if you know what to expect and are armed with the right information, the whole thing can be done with much less of the anxiety-ridden emotions and much easier to navigate. So then, here are the 6 things your lender will look for when buying real estate in Roseburg.
1. Credit Score and Payment History
You can count on the first thing your lender will look at when buying real estate in Roseburg is your credit score. In our grandparents’ day lenders would have first considered a borrower’s character, interesting right? But today’s credit score has supplanted character as a “risk” measure of a person’s likelihood to repay or default the mortgage loan. For lenders, a high credit score means low risk.
“Your credit reports contain information about your credit accounts and transactions. A lender can look at your credit reports to learn how consistant you are at making payments on time. They also look at how many accounts (credit cards, auto loans, student loans, etc.) you have in good standing. A credit score is a three-digit number that reflects the information in the corresponding credit report. Knowing what factors go into your credit scores can help you know what steps to take to improve your score an make a good a impression on potential lenders.”
Although different lenders use different scoring models, the higher your score, the better off you will be as a borrower. So if your credit score isn’t all that great, start working on it now to get your score up.
2. Ability to Repay
In addition to credit score, lenders use other tools to assess your ability to repay. The two biggest things here that lenders will look at when you’re buying real estate in Roseburg are your employment and income.
When applying for a mortgage, you need to have some documents ready (at a minimum)
- Your most recent income tax return (2 years’ worth if self employed)
- Few months’ worth of pay stubs
- Six months’ worth of bank statements.
More important, though, in assessing your ability or capacity to repay will be stability. A lender will shy away from approving people who jump from job to job. They will also look at whether your industry is prone to layoffs. Lenders want to be assured that you will keep your job and that there will be a job there for a long time for you to keep.
Lenders also consider your debt-to-income (DTI) ratio. “This metric helps them evaluate how much additional debt you can handle and how much of a credit risk you pose. Though your DTI ratio isn’t one of the key factors . . . it can still have a significant impact on your ability to get credit.” In short, if a big chunk of your income is already going to pay existing debt, a lender won’t consider you a good risk for a mortgage. Key – pay off revolving and credit card dept and only keep necessary credit cards.
3. Reserve Capital
Also, when buying real estate in Roseburg, you need to have some cash reserves. If you have cash reserves in savings, investments, or assets you can quickly and easily liquidate, you will appear more attractive to a lender. Why? Because if you experience any kind of financial hardship, you have a financial safety net . . . and can keep making your monthly mortgage payments.
According to financial experts, “if you don’t have cash in the bank after you’ve bought a house, you could be vulnerable. . . . A financial cash cushion can act as a shock absorber for everything from unplanned home repairs to a job loss. Oftentimes, mortgage lenders will frame your savings in terms of a certain number of mortgage payments that you have in the bank.”
4. Total Debt
We’ve mentioned the debt-to-income ratio as one of the important considerations for buying real estate in Roseburg. But that isn’t the whole debt picture that lenders are interested in. Lenders will also want your debt-to-income ratio to be within certain bounds – typically between 43% to 50%. This percentge is calculated by dividing your total monthly debt payments by your gross monthly income. Your lender will also want to be assured that you aren’t in the process of going or planning to deeper in debt.
This means that you should avoid borrowing to make any new, major purchases. Remember: lenders will re-check your credit at some point before closing, and new debt will at least delay and could even shut out your mortgage loan. Keep you future home improvement plans to yourself. It’s not a good idea to mention possible new debt or or home improvements you plan to take on after closing.
5. Employment History and Income
We’ve also mentioned your stability, especially employment stability, as important to lenders. There is, though, more to this one as well.
“Just as a lender will review your income,” industry pros assert, “the same can be said for employment history for most loans.
‘Not having steady work for the last two years could potentially impact your eligibility.” Castle & Cook Mortgage lender.
Even if you’ve been steadily employed, lenders want to see that you’ve been at the same job for at least two years. If you are stable in your job, you are more likely to be stable in making your mortgage payments.
In addition, lenders don’t want to see any wild swings in your income (unless it’s in a dramatic upward direction). An up-and-down income for whatever reason – demotion, self-employment swings, industry upheavals – won’t make you appear a very good risk to lenders.
6. Ability to Make Down Payment
And, of course, when buying real estate in Roseburg, you have to be able to make the down payment. Although you may not have to come up with the traditional 20%, you’ll still usually need to be able to come up some cash down. Most lenders will require a minimum of 3 – 3.5% cash down. And that’s a good thing, really, because it’s an investment in your home’s equity.
Although there are many low down programs available today, keep in mind that those lower down payment loans have a catch – private mortgage insurance. “There are a number of programs that require a lower down payment, allowing you to finance up to 97% of the purchase price. But in most cases, you’ll have to pay mortgage insurance if you put down less than 20%. This extra insurance protects the lender against losses if you default on the mortgage.”
Work With A Sky Team Agent
When you’re buying real estate in Roseburg, these are the 6 top things lenders will look for. Still, emphases will vary from lender to lender, and some will likely consider additional factors. Our team has experienced local agents who are ready to be your resource in finding out everything you need to know to get that mortgage and find your dream home.