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What You Should Know Before Buying A
Home
To be able to qualify for a loan
to purchase a home, lenders review your 4 C's - Capacity,
Credit, Capital and Collateral - to see if you are able to
repay the loan. The following is a brief summary of the 4
C's.
Capacity is your ability to repay a mortgage
loan based on your income and work history.
Consider the following:
-Do you have the ability to repay the loan?
-Do you have a stable income that is likely to continue?
-Do you have enough income to meet the mortgage payment
expenses?
Mortgage principal, interest,
taxes and insurance should not exceed 28% of your gross
monthly income.
Mortgage principal, interest,
taxes and insurance; as well as recurring monthly debts,
such as auto loans, credit and revolving credit card
payments should not exceed 36% of your gross monthly income.
Gross Monthly Income includes
any additional income from overtime, part-time employment,
bonuses, dividends, interest, royalties, pensions, Veterans
Administration compensation, net rental income, etc., and
other income such as alimony, child support, sick pay,
social security benefits, unemployment compensation, income
received from trusts, and income received from business
activities or investments, workers compensation, and
disability.
-Do you have the ability to go
from the present rent payment to the proposed house payment?
-Does your present financial lifestyle allow for a savings
pattern for unforeseen housing expenses?
Credit is the confidence in your ability or
intention to fulfill your financial obligations. Your credit
report will be reviewed to make this determination. To
prepare; request a copy of your credit report from the
credit bureau. Review the report and check it for any
errors. If there are errors take this opportunity to clear
them up. Should you have credit problems start working on
them now. By working with your creditors, your report will
eventually indicate a healthy credit climate and you may be
ready for a mortgage. If you do not have any credit accounts
this may be held against you. However, some lenders will
allow for alternative credit, which reflects the manner in
which you have paid your utilities and car insurance,
including any past rental or mortgage history.
Capital is defined as wealth such as money or
property accrued by an individual indicating the amount of
money you have saved to cover down payment or closing costs
and includes: Checking Accounts, Savings Accounts, Insurance
Policies, Gifts, IRA or Keogh Accounts, 401(k), stocks,
bonds, proceeds from the sale of existing property, real or
personal.
Collateral is defined as property acceptable
as security for a loan or obligation, which in this case
would be the home you are buying.
Before signing a contract to purchase a home, consider the
following:
-Can I afford this house?
-Does this house meet the needs of my family?
-What kind of maintenance does this house require?
-Does the roof appear to have at least 5 years of life left?
-Does the plumbing work?
-Does the electrical system appear to operate efficiently?
-Examine the foundation of the house. Is the basement or
crawl space dry? |
