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| Buying a home can be an intimidating experience for many people,
especially those who are unsure about their financial wherewithal. In
reality, though, the number-one obstacle most people face is simply a
lack of knowledge. Below, we've listed some of the most common
challenges buyers face and how they can be overcome.
Obstacle: Insufficient cash for a down payment.
Strategy: Although a 20% down payment used to be the norm a few decades
ago, today many common mortgage programs require as little as 3% down.
If you have a good income and excellent credit, you may qualify for a
program requiring no down payment at all. Both the Federal Housing
Administration and Fannie Mae offer 3%-down loan programs. You might
even consider borrowing your down payment from yourself. As long as the
extra debt would not adversely affect your buying power, your current
assets, such as a car, boat, life insurance policy or another home you
own, could be resources to draw upon. In addition, buyers can borrow
from their Individual Retirement Accounts or even those of relatives.
Obstacle: Too-little cash for up-front fees and points
Strategy: Look for "low cost" or "no-cost" loan programs that can help
you get into a home when there's no money left over after the down
payment. Although interest rates are often quoted with points (a point
equals 1% of the loan amount), by taking a somewhat higher interest
rate you can avoid paying points altogether. (Remember, though, the
higher rate will mean larger monthly payments.) Other strategies
include rolling some of the closing costs into the mortgage and/or
asking the seller to pay them.
Obstacle: Lacking enough money to pay up front for private mortgage
insurance.
Strategy: Buyers who put down less than 20% must purchase private
mortgage insurance to protect the lender in case of default. The
up-front premium can add up to about 1% of the face value of the loan.
In today's market, however, some insurance companies will let buyers
finance the up-front mortgage insurance over time.
In addition, there are other mortgage programs that alleviate the need
for mortgage insurance, such as an 80-10-10 program. This type of loan
requires a 10% down payment, combined with a second mortgage for 10% of
the value of the home. This way, the amount borrowed in the first trust
is 80% of the value of the home--eliminating the mortgage insurance
premium. There are also "self-insure" programs available to you if you
are able to handle paying a higher interest rate.
Obstacle: Poor credit rating.
Strategy: What seems like bad credit to you may actually be sufficient
to get you into your next home. If you know for certain your credit is
blemished, but with good reason--such as illness or loss of job--a
letter of explanation can go a long way with the underwriter. If you
have bad credit with no explanation, all is not lost! Change your
credit habits, consolidate debt and pay your bills on time. It may take
12 to 24 months of good credit behavior to clean up your record, but
the benefits of homeownership are worth it.
Obstacle: A "special situation" that makes getting a mortgage doubtful.
Strategy: The bottom line in qualifying for a home mortgage includes a
combination of income, debt ratios and credit ratings. Anything outside
those three can usually be explained or documented.
Following are some special situations and how to work around them.
* Self-employed and commission-paid borrowers must provide federal tax
forms for the past two years, along with a current year-to-date profit
and loss statement.
* Divorced or separated borrowers will need to provide a copy of the
divorce decree and separation agreement, plus documentation of any
alimony or child support payments they are required to make. If alimony
or child support payments are to be considered as income, proof of this
income (such as the clerk of court's history of payments or canceled
checks for the past 12 months) will be needed.
* Retired borrowers and others receiving pension, disability, Social
Security or any form of public assistance benefits as income will need
to provide a copy of an award certificate or a check from the issuing
agency.
* Bad-credit borrowers who have a bankruptcy, foreclosure or other
judgments against them in the past seven years should provide
information on the proceedings. Information on bankruptcies should
include a copy of the bankruptcy discharge and a schedule of both debts
and assets. Judgments against the borrower should include an attorney's
letter that discusses the outcome of the proceedings.
I'd be happy to help you cross the barriers between you and your next
home purchase. Give me a call!
You can find more articles like this by subscribing to my newsletter or
by visiting www.RealEstate-IQ.com.
Regards,
H. Scott Miller
National Commercial and Residential Lender/Broker
Carteret Mortgage
TOLL FREE PHONE#: 1.877.716.6495, ext. 5
TOLL FREE FAX#: 1.877.578.2041
EMAIL: hugh.miller@carteretmortgage.com or EZMortgageLoanz@aol.com
Real Estate Help Desk (www.RealEstate-IQ.com)
Automated Loan Assistant (www.EZMortgageLoanz.com)
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