Vail Daily column: How to get ready to buy a home
As the buzz around town this week is about the upcoming Chamonix project, it seems like a good time to discuss what it takes to get a home loan. Even seasoned homeowners will find the process far different if they have not applied for a loan in the last seven or eight years.
There are four parts to the answer of getting approved for a home loan: credit, income, down payment and collateral. Having an abundance of any three generally won’t make up for lacking the fourth.
Income is looked at in terms of your net taxable income, as well as your job stability. If you have multiple jobs working consistently in the same field or fields for two years, then a lender can generally string that together and give you credit for all your income earned. If jobs are seasonal and its January, then we might confirm with your summer employer that you are eligible to come back next summer and average your income over the last two years from that job or line of work.
If, however, you worked as a gardener last summer and a raft guide the year before, then the gardening income probably cannot be counted because you do not have two years of history. If you worked for two different employers over two years but did the same job, then we might be able to make that work.
If you make a lot of tip income, then a lender can only count what is reported on your taxes (so might be time to ‘fess up come tax day). Generally that portion of your income would be averaged over two years. If you are commissioned, a lender will average your net commission income (which is after you deduct things like mileage and cell phones) over two years.
If you are straight salaried and make the same year-round, then we would look at your monthly income and add to that the two-year average any bonus or overtime income. Hopefully you have worked at least in the same field for two years if not the same employer. If you are just out of college and have a degree in a field and recently started working in your field, then the two-year requirement can be waived.
If you are self employed, then we average your net income for the last two tax years.
In terms of credit, the higher your score is the lower the cost of your loan. The difference between a 620 and a 740 score can be over half a percentage point in the interest rate. If your credit score is a little challenged, then you might want to work on paying down your debt and raising your score.
As for down payment, generally 5 percent is safe. There are some instances were 3 percent down can happen, but there are many limitations to qualifying for such a loan. There are two programs, one for Veterans especially and one for low to moderate income buyers, that do not require any down payment, but again lots of limitations (and these 100% loans will not work on a deed restricted property).
In terms of collateral, and in the case of deed restricted, the deed restrictions can impact the terms of the loan. Vail knows how to handle deed restrictions, and from what I am told there should not be any issues in regards to the deed restrictions be workable. The appraisal must demonstrate however that there is an established market for similar properties that face similar deed restrictions. That might be challenging for the first few buyers in Chamonix, particularly on the higher priced units as there are no other comps in the County in that price range.