Buying a home – What banks are looking from home buyers

homeloanAre you planning on buying a home?  Now is a great time to buy a home if you can afford due to low interest rates.  But since the real estate market crash in 2007 and 2008, banks and lenders are making it more difficult for home buyers to get a home loan.

To get a home loan these days, you have to prove that you are a good risk for the bank to lend you money for your new house.  If you are looking for luxury homes for sale in riverside ca, make sure that you are pre qualified before you start looking at homes.

Banks have very complex rules and under-writing  to review the credit-worthiness of a home loan applicant.  Gone are the days of the stated income loans – where buyers didn’t have to prove the income they claimed.  Here are five tips to give you a better chance of getting a home loan.

Don’t let your mortgage payment exceed one-third of your monthly income.  The formulas that  banks use in determining if and how much a buyer can get for a home loan requires that you have a sufficient income, to meet the home loan debt as well as all your other debt.  One third of your monthly income is a good general rule of thumb.

Your credit score needs to be 680 or higher.  A credit score of  680 or above that is a must.  An even higher credit score is needed for conventional financing.  A good credit scores tells banks that you have a history of managing your debt and paying your bills on time.  This history is crucial in order to get approval on a home loan.  Without that good history, don’t expect to get a home loan when trying to buy a home.

Be prepared with information on all your debt.  Lenders  look at your all your debt before deciding to give you a loan. You can’t hide debt from the lenders – so be forthcoming in sharing all your debt information.

A higher down payment is looked on very favorably by lenders and banks.  A typical conventional loan has a 20% buyer down payment but there are conventional programs for less (i.e. 10% down).  FHA loans require a minimum of 3.5% down – but they have a higher cost due to their required mortgage insurance premium.  A higher down payment reflects your good management of money because of your cash on hand and it also brings down your payment – and the debt to income ratio calculated in determining if and how much the lender will lend to you.

Choose a good location. The house you are buying will have to be appraised.  And that appraised value has to be at least at the contract price.  Appraisals take into consideration: location, condition of the home, recent comparable sales nearby.  If you are looking to buy a home in a declining  market area, the banks are less likely to loan money at their best rate to borrowers who want to live in those perceived risky areas – and problems with the appraisals in these areas are common.

http://www.bloomberg.com/news/2014-04-17/u-s-mortgage-rates-fall-with-30-year-at-a-two-month-low.html

 

Getting a home loan or refinancing a home loan depends on how much risk banks are willing to allow before granting you a loan. And banks these days are taking a lot fewer risks than previously.  Buyers really have to be able to afford a home nowadays to get a home loan.  And that’s a good thing.