There are a few
financial tricks to know and traps to avoid when you are
thinking about buying a house. Qualifying for a mortgage
is far more difficult than qualifying for a credit card
or a car loan. Although there are literally hundreds of
different mortgage programs available, they are almost
all based on the same qualification information - some
combination of income, monthly expenses, and credit
history. Planning ahead, in some cases as far as one
year, can help many people avoid hassles.
Using "Gift" Funds
If you are receiving a
gift for all or part of your down payment, arrange to
receive the funds six months before mortgage
application. Place the funds in your own bank account.
Reason: many mortgage lenders place restrictions on the
amount (percentage of down paymentand the source of gift
funds. However, when you make mortgage application, the
lender checks only three months' bank statements. If the
funds are present on the oldest statement, they are
"your" funds, not a "gift". If your parents plan to give
you a gift just in time for closing, they must be
prepared to show your lender that the funds actually
exist in their bank account at the time you apply for
your mortgage. All parents are different, but many of
them strongly resent having to supply their own bank
statements to prove the gift.
Large Purchases
Okay, you are excited
about buying your house but you need new furniture and
appliances. Your car is falling apart. Defer any
purchases--particularly credit card or installment
contract purchases--until after closing on your new
home. Monthly credit card obligations can ruin your
expense ratio very quickly. Your idea of the debt you
can handle and your lender's idea of the debt you can
handle may be two entirely different numbers. Unless you
have a VERY high income, do not buy a new car or a new
boat prior to applying for a mortgage. Car leases count
just as car payments do. Current Mortgage Payment
History Lenders check your credit history. If you
currently own a home, make sure you do not have any late
mortgage payments for 12 months prior to applying for
your new mortgage. If your budget is tight, ALWAYS pay
your mortgage first. According to Fannie Mae guidelines,
lenders cannot issue you a new mortgage if you violate
the 12 month rule. Mortgages belonging to consumers with
a sloppy payment record do not meet Fannie Mae
guidelines and therefore cannot be sold into the
mortgage market. The lender must keep those mortgages
for its own loan portfolio, something the lender
probably won't want to do. Portfolio loans usually have
much higher interest rates than do Fannie Mae loans.
Avoid Credit Disputes
If you get into a credit
dispute over a small sum, just pay it. It may be against
your principles to do so, but the incredible hassle
involved in trying to clear it up isn't worth it.
Unfortunately, the credit bureaus are powerful;
individuals are not. Hospitals are particularly
notorious for reporting small unpaid balances to credit
bureaus. Frequently, these are amounts people assume
have been paid by the insurance company but for one
reason or another are not covered by the insured's
policy. Credit bureaus do make mistakes, but
unfortunately the burden of proof is on you, not on
them. Check your own credit several months prior to even
looking for a house. This will give you time to clear up
any problems or misunderstandings! A little financial
planning and detective work prior to house hunting can
go a very long way in making your mortgage application
easy and stress free. |
