The Right Loan
Finding the Right Loan May Be the Key to Your Dreams
By Natalie Sweeney
Over the years, many buyers have told me that lenders
said they only qualified for a certain loan amount, and
therefore a certain purchase price. Often though, after
asking these buyers several key questions, I could
recommend a loan that allowed them to qualify for the home they wanted and with payments they were
comfortable with. In many cases, by finding the right loan for their situation, the buyers have
qualified for a loan that assisted them with their closing costs as well as their down payment.
How do I know which loan is best for me? I am glad you asked. To answer that question, many aspects of your financial situation must be determined. These factors are then matched to the guidelines of the loan that best accomplishes your goals.
Each loan has its own qualifying guidelines and allowable terms of purchase. For example, one loan will allow you to finance your closing costs, another will allow the seller to contribute an amount up to two percent of the purchase price toward your closing costs, while another will allow the seller to contribute up to six percent of the purchase price toward your closing costs. Some of the critical factors that will be considered are:
- Credit history
If your credit history is too brief, certain loans will allow you to use a record of your payments to utility companies.
- FICO scores
Some loans have guidelines that rely heavily on FICO scores and offer lower interest rates to those applicants with higher scores.
- Debt-to-income ratios
You may not have to pay off as many debts prior to your purchase if your particular loan allows you to have a higher debt-to-income ratio. The debt-to-income ratio requirement depends on the type of loan.
- Type of employment/type of pay structure
Self employed, salary, hourly, and overtime: The pay is looked upon differently for each particular loan.
- W2s and tax returns
- Job history
Lenders vary on how much time they require you to be in a certain line of work.
- Hours Worked
If you are an hourly employee it is important to show a consistent amount of hours worked for a certain amount of hours to be counted to justify the declared amount of income.
Depending on the loan type overtime may be used if you have a history of working overtime.
- Upcoming raises or the possibility of raises
- Homeownership: First-time buyer? Homeowner during the last 3 years?
- Investment properties
Do you want to invest a sizable down payment or keep some funds for home improvements and other costs?
- Compensating factors
These can help the lender go beyond the normal guidelines of the particular loan.
- Special personal circumstances
Are you a veteran, teacher, or a firefighter?
- Special location circumstances
Are you purchasing in a geographical area or city that qualifies for special financing?
- The condition of the property
Is the property a fixer-upper? Some loans are well suited for fixer-uppers, and some have stricter guidelines regarding the condition of the home. Some allow repairs during escrow and some do not.
- Amount of money available
How much money would you like to - or have available to - invest toward your down payment and closing costs? Do you need assistance with the down payment and/or the closing costs? There are loans that will provide financing for these costs and/or allow the seller to contribute toward them.