Preparing for a mortgage depends on what you do for a living or, in some cases, where you are in life. Regardless of what you do for a living, too much debt will cause you problems when looking to finance a home.
So the first step is pay off your loans or credit cards. If you have multiple loans, pay off the smallest balance first. Then repeat the process with the next smallest balance.
The next step in preparing for a mortgage depends on employment and age.
For people earning a salary, start gathering the documents you need to show for a loan. Two years of tax returns, 2 years of W-2s. Two most recent months’ bank statements (all accounts, all pages). 2 most recent pay-stubs. Start gathering these now and simply add to the stack as time goes by if you are still paying off existing loans.
For the self-employed, start by gathering two years of tax returns. The 24 most recent months’ bank statements (all accounts, all pages). The last two years’ of monthly profit and loss statements for your business. If you are fortunate enough to have a substantial profit at the end of each year and it grows year over year, you can opt for a regular mortgage such as a Conventional loan, or an FHA/VA/USDA as the case maybe.
Mortgages For Salaried Borrowers
You make a down payment on the home, the remainder is financed such that the monthly payment does not exceed a certain percentage of your gross (pre-tax) monthly salary. Interest rates will be relatively low. Your FICO score will be factor, as will your credit history. All of the documents listed in the “Salaried Borrowers” paragraph will be required. You maybe be asked to provide some additional documents depending on circumstances .
For self-employed people who have many write-offs and little resulting income, there are alternatives to the regular mortgage. As you are not salaried, there are loans where you monthly deposits to your bank account are considered instead. How far back will the lender go? It depends on the kind of loan you want and the lender you choose. The are bank-statement loan that use 24 months of bank statements to determine your eligibility. These typically have the lowest interest rates among these alternative loans. There are also loans based on 12 months’ bank statements. There are even loans based off of a single month’s bank statement. The fewer months’ of income they are seeing, the higher the interest rate they will charge you.
Mortgages For The Retired
If you are 62+ years of age and retired, you can still qualify for a mortgage. Typically you have a substantial equity position in your current home. If not, you need substantial savings. This is for a Home Equity Conversion Mortgage. Used for repairs or to downsize into a smaller home while living on the proceeds of the sale of the former home, it can also be used to purchase a [usually bigger] dream home. This mortgage does not require the borrower to be employed. There is no FICO score or credit history requirement. You will be required to properly maintain the home, pay property taxes and any Home Owners’ Association dues. In return, there is no monthly mortgage payment requirement.
As you can see, there is a mortgage for almost any situation. Preparing for a mortgage is an important first step. Speaking with a loan specialist will help you narrow down your options to the most relevant and feasible. If you’d like to discuss any of this, contact me at 760 622 5087 or [email protected]