Vail Daily column: Things for first-time homebuyers to consider
Recently, I was invited to participate in the open house that the town of Vail sponsored in order to show potential homebuyers in the Chamonix development some of the town’s considerations for development. My post was to greet the interested and discuss how buyers could finance such a purchase in a deed-restricted community, and as expected, most of the lookers were first-time home-buyers.
Buying a home is not for everyone, but for those who really want to do so, getting prepared financially to buy a home is a process that requires some planning and some thought. Often, I have worked with people for two years or more to get their finances, credit and employment history in order to qualify.
Getting a mortgage takes equal amounts of good credit, adequate down payment (usually 5 percent minimum), taxable income and a stable job history.
When it comes to credit, one must usually have at least three trade lines open for two years and show a good on-time payment history. Even a 30-day late payment can whack your credit score and it take years to fully recover. Collection accounts, even if one is for a overdue library book, can implode your dreams of home ownership. There are also three credit bureaus that have may have slightly different credit history files on you (some accounts are not reported to all bureaus). It is important to check all of your reports and make sure they are accurate and up to date.
Adequate Down Payment
As far as down payment, figure on 5 percent. There is one program that will go 100 percent loan-to-value, but it has a mountain of restrictions on it and not everyone can get into it. The more you can put down, the better. If you have less than 20 percent down, then you will pay a fee called mortgage insurance. There are also down payment assistance loan programs offered, but they don’t always work for everyone and aren’t necessarily the best way to go financially.
As for your job history, a lender looks at your income during the past two years. If you change jobs frequently but within your field (such as housekeeping or waiting tables) then we can average your income from the different employers with what you are making now. If, however, you switch fields of work frequently, then we can’t determine what your stable income is likely to be. So if you were a raft guide one summer and a limo driver the next, then you’re going to have trouble getting a loan.
When it comes to income, one question I often am asked how a person can count the income from a roommate. The answer is that you can almost never count it when qualifying for a loan.
If the roommate has paid you with checks and you have been sharing a home for the previous two years, then there might be a way to count it. If you are self-employed, then you might have to forgo some of the tax deductions you have been taking to show adequate taxable income. If you work on tips, then be sure to ’fess up on April 15 and report them all!
Another question I often get is about having a parent co-sign the loan. Options for this have opened up somewhat the last few years and it is getting easier to do. We can sometimes add everyone’s income and expenses together and use the combined numbers to qualify the borrower.
Keep in mind that a lender counts your monthly expenses such as car, credit card and loan payments when determining if you qualify. It might be best to get one more year out of that old beater of a car instead of taking on an expensive car payment that could disqualify you for a mortgage loan.
My approach for first-time buyers is to get them in for a counseling session early on and do a spreadsheet of income, assets, liabilities and review their credit. We can then determine what areas we are short on and see if there is a way to bridge the gap. Sometimes, this means waiting a year, or in some cases, two, and sticking with the job, pulling lots of overtime shifts and saving money like crazy. The effort may be considerable, but the rewards can be substantial, once you have a place to call your own.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and welcomes mortgage related inquiries from readers. He can be reached at 970-748-0342. His website and blog is http://www.mtnmortgageguy.com
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