The home loan market in Warrenville has followed most of the Illinois real estate market in recent years. Prices increase as inventories shrink. Still, there is much to be said for getting pre-qualified and claiming your stake in this booming sector.
In this article, we cover some factors to consider and steps to take if you’d like to become a homeowner.
Check Your Credit Score
The first step to get pre-qualified for mortgages is to prove you have a credit score worthy of getting you in the game. Anything above 700 is going to put you in a pretty good position.
However, the higher your score, the better your interest rates will be. If lower than 700, you might still qualify for government programs or higher interest rates, but you’ll want to consider whether that’s a better financial move than taking several months to establish a better overall score.
Address Any Issues
Not every issue that shows up on your credit report is accurate. Each year, close to 70 percent of people who check their reports can spot an inaccuracy. To qualify for a mortgage loan, you’ll want to get these cleared up beforehand.
Additionally, you can improve your credit score by just being more attentive to payment due dates. Also, whenever you pay off a debt, it will improve your debt-to-income ratio.
That means less of your earnings are going to service debt. Lenders like this and are more apt to pre-qualify you.
Confer With a Mortgage Lender in the Warrenville Area
Working through a mortgage lender can help you start the administrative process of applying for a loan. A lender can guide you on things like types of documentation needed and which areas to address in your credit history.
They can also help you determine how much house you can afford and whether there are any lending assistance programs for which you might qualify. Best of all, they help you explore your options to get the best potential rate.
Provide Valid ID
Mortgage companies heavily probe the backgrounds of those to whom they loan money. That starts with being able to verify their customers.
That means you’ll need some form of official identification in your file. A driver’s license, state ID, or passport are all acceptable forms.
Do a Salary History
Your salary history is an important factor in determining how much you’re eligible to borrow. There are two primary areas of focus.
This should be easy to pull together if you’ve ever filed a tax return. Lenders may differ on how much income verification they ask for. Expect to pull at least two years’ worth of W-2s.
W-2 forms show the amount of money grossed and what was paid in taxes, medical insurance, and social security. They are given out to full-time employees. You’ll need one of these if you’re filing your taxes at the end of the year.
Business income can be more complicated to calculate. You will typically report this as part of a “Schedule C” return. It includes gross receipts minus deductible expenses, employment taxes (social security, medical), and federal and state taxes.
Tax software can help you accurately report this, but you may wish to consult with a tax professional to make sure you get it right. Either way, a Warrenville lender will ask for tax returns showing these items documented in detail.
Compile Other Assets
Your income plays a major role in pre-qualifying you for a home loan, but it’s not the only thing you can use to your advantage. Other helpful assets to consider are as follows:
Properties or Possessions
Think of any type of real estate or personal possession in which you can prove significant value. This could be a savings bond, investment account, or in some cases, a tangible object, like a rare collection of some kind.
What do you have in your savings or emergency fund? Large enough amounts can offer assurance to lenders that you have enough to make a requisite down payment. This can qualify you for a home you might not otherwise be able to purchase.
Decide How Much You Want to Borrow
Financial goals differ from one person to the next. Goals to purchase a home can vary, depending on what is available in the Warrenville area, ranging from fixer-uppers to rentals to long-term investment properties.
How much home do you want? There are two main factors to consider when deciding.
What You Can Borrow vs What You Should Borrow
What you can borrow and what you should borrow are often two different numbers. What you can borrow is the maximum amount regardless of how well you’re able to maintain payments. This figure doesn’t usually account for emergencies.
What you should borrow should be a lesser amount. That’s because homeownership has more costs than your monthly mortgage premium. It also entails insurance, mortgage insurance (if you can’t afford a 20 percent down payment), and maintenance.
That’s Right – Maintenance
The consensus is that you should save a minimum of 1 percent of your home’s mortgage amount for maintenance costs annually. For a $100,000 home, that would be $1,000-$3,000 per year, or an extra $84-$250 per month.
Some lenders fail to mention this amount when they’re telling you how much you can afford. Don’t forget to put it into your monthly budget.
How Much to Put Down
You have three options when it comes to a down payment. None, partial, or full. Here’s what we mean by each one.
- No Down Payment: Guarantees mortgage insurance on a monthly payment
- Partial Down Payment: Below 20 percent of the purchase price, mortgage insurance still required.
- Full: 20 percent of the purchase price, no mortgage insurance amount required
There are advantages to paying mortgage insurance and holding onto your money just as there are for doing a full down payment. Determine which is right for you.
Get Pre-Qualified for a Home Loan and Be on Your Way to Homeownership in Warrenville
If you’re in Warrenville, or the surrounding area, and need a home loan, then it’s time to mobilize. That means figuring out where you stand.
Watch your credit score, address issues, figure out your financial situation, your plans, and take action. You can start by visiting with one of our loan officers at Compass Mortgage today.