Shop for a mortgage, then shop for a house

Buying a home is one of the finer things one can do for the family or even yourself. But, before you start shopping for that home you have always wanted, it is best to visit your mortgage lender to determine your qualifying status to purchase it.

A short visit can establish a plan for finding that dream house that will work with your financial status. A pre-qualifying visit to your credit is in order, as it is best to see your lender before looking at that dream house.

It is a matter of timing. If you find your dream home and then discover it will take six months or so to straighten out your finances, you stand a very good chance that your dream home will have been sold to someone else. In addition, the amount of down-payment required has changed somewhat over the last year. Instead of zero percent down, consider whether you can cough up a down-payment of at least 10 percent. That gives you an equity cushion if you need to sell and prices are down. Even better is 20 percent down, which lowers your interest and insurance costs.

Mortgage underwriters look at a variety of factors in evaluating a loan application. Some of those factors are impacted by debt owed by the applicant.

“Debt-to-income ratio measures monthly debt payments against monthly income.

“Different lenders use different formulas. Generally speaking, housing costs, including mortgage payments, insurance and taxes, should be no greater than 28 percent of your gross income.

“Total debt payments shouldn’t exceed 36 percent. Lenders turned a blind eye toward these longstanding affordability formulas during the boom. Sticking to them now will keep you from overextending.

“What is your net worth (total assets minus liabilities)? Lenders want to be sure that borrowers have demonstrated an ability to pay their debts and manage their financial affairs.

“They also want to see that there are adequate financial reserves to cover the home purchase and other expenses for two to three months in case income stops due to loss of a job or other emergency.

“Never be one paycheck away from a missed mortgage payment. Here, again, large amounts of credit card debt with little to show for it will make it harder to qualify for a loan.

Credit history is not a secret. It would show up on the applicant’s credit report. Any negative information could result in a credit score too low to support the home loan you wanted.

If that is so, meet with your mortgage lender first and provide honest answers about income and other debts. You can learn if you are likely to qualify for a loan or not. On the other hand, a credit score that is really high allows the applicant to negotiate for better interest rates.

“If you do not qualify, you can get valuable information about the steps you need to take to qualify for the loan and how much you are able to borrow for the home.

Then, you can shop for your dream house knowing just what it will take to purchase it. If too much credit card debt is keeping you from getting that home, consider making an appointment at Consumer Credit Counseling Service. There is no charge.