What Are the Three Primary Financial Requirements for Purchasing a Home?
There are many different factors that need to be considered when purchasing a home, including the three primary financial requirements that determine whether or not you are eligible to buy the house at all. If one of the financial factors is not acceptable, you may be able to buy the home by putting more emphasis on another one, such as a higher cash down payment to compensate for problems on your credit report.
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Acceptable Credit Score
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One of the first questions a lender will ask you for is your credit score. Your credit score is used as an indicator of how reliable you are in paying your debts on time. A perfect credit score is 850, and lenders prefer dealing with borrowers with a credit score of 750 or better. The lower your credit score, the higher your interest rate is likely to be. Consumer Counseling Services advises potential home buyers to begin work on their credit scores several months before the planned application for a loan, making sure that it is accurate and that mistakes have been corrected or notated in your credit report.
Available Cash Flow
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You will need to present the lender with documents that show your current cash flow and availability. According to Businessian magazine, lending agencies will typically request six months' worth of bank statements from all banking institutions you deal with. It is not unusual for a lender to expect a sizable down payment as well, as much as 20 percent down for people with less than perfect credit and 3 to 5 percent for those with high credit scores. That means you will need several thousand dollars fr a down payment, plus closing costs and other fees associated with finalizing the mortgage.
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Verifiable Source of Income
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To verify your income and employment, Businessian magazine goes on to state that you should provide one month of current check stubs and the previous two years of income tax and accompanying W-2 forms. If more than one person is being named on the mortgage, you will need to provide employment and tax information for each person. Lenders are not only looking at your proof of consistent income, they are also looking at your length of current employment to establish an idea of how responsible you will be.
Overcoming Low Credit
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If you have a low credit score, you can still purchase a home. You will need to provide a longer stable work history, the amount of your down payment will be much higher than someone with great credit and your interest rate will likely be higher, but you can still qualify, If you own another home or property, consider offering that property as collateral on your new purchase, offsetting the risk of lending to you by putting real property on the table to support your debt.
Best Credit Gets Named
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If you have a great credit score but your spouse's credit score is only average, it could be helpful to omit your spouse from the mortgage. By leaving the spouse out of the equation, mortgage lenders will only be looking at your more favorable credit score. Make sure you have enough income to qualify for the loan by yourself, though. On the other hand, if both partners have mid-range credit scores, having both parties named on the mortgage could improve your chances. Research both credit histories and arrange the mortgage so that your credit works for you as much as possible.
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