Factors considered to prequalify to purchase a home

The 4 C’s: credit, capacity, capital and collateral.

1. Credit: Te credit is measured by a number called credit score.

Credit scores are created by taking information and analyzing that data to forecast how someone is likely to behave in the future. By looking at factors like how much debt consumers carry, and whether they have paid their bills on time in the past, for example, they help predict whether someone might pay a new bill on time or how they will handle a credit line increase. Credit scores range from 300 to 850 and are reported by three major credit bureaus (Equifax, Experian and TransUnion).

IF YOU HAVE NO CREDIT: There’s a phrase that says “no credit is better than bad credit” and it is true. Why? Because you can obtain a mortgage with no credit score, as long as we can show 3 alternative lines of credit in good standing for the past 12 months such as a cell phone, electricity, cable, car insurance, etc. If you want to start establishing your credit, you may want to obtain a pre-paid credit card and wait a few months, paying on time  and then getting a regular (unsecured) card. You can also ask someone who has good credit to add you as an authorized user in their account which will show up on your credit report.

IF YOU HAVE BAD CREDIT: If you already have bad credit, no problem, you have two choices: Fixing it (opening investigation or disputing inaccurate information where creditors are unable to prove within 35 days should be removed from your credit report) or you can obtain an FHA loan with a fico score under 580, however the required down payment will be 10% and you will have to explain and show compensating factors. Make sure you get informed on how to fix your credit before undertaking the task yourself. There are experts that you could hire to help you as well.

IF YOU HAVE GOOD CREDIT: Congrats! You will have access to the best loan programs and the best interest rates.

2. Capacity: Lenders look at your income, employment history, and other financial obligations in order to know if you will be able to pay back your loan. They will use your total gross monthly income and multiply by a percentage called debt ratio (on conventional loans usually 45% and for FHA loans up to 55%) and that will be the maximum total payment that you can make, and that should include: your new home payment, your monthly installment account payments and the minimum payment on your revolving accounts. Usually lenders seek for 2 years of employment in the same line of business. If your income is not enough to qualify for the purchase of a home, you may be able to get a co-signer.

3. Capital: Lenders consider the money and savings you have readily available plus investments, properties, and other assets that could be sold fairly quickly for cash. Having these reserves prove that you can manage your money and have funds, in addition to your income, to pay the debt. It will also be considered to source the down payment on your new home, which can also come from a gift from a relative. If you don’t have the money for the down payment or a gift from a relative, but you are a first time home buyer, with 640 Fico score (and income not higher than 75,000 in Palm Beach County), you may qualify for a bond loan which is a second mortgage with no monthly payment to assist with $10,000 for down payment and closing costs.

4. Collateral: Lenders take into account the value and condition of the property. With traditional loans, the property must meet some safety and habitability requirements. When finding a home that does not comply with these requirements (in need of appliances, roof, fixtures, etc.) we can provide a “renovation loan” which would allow buying a property in those conditions as long as the repairs would be done in connection with the loan. The money to purchase the house and the cost of the repairs are then combined in one loan.

The last thing that you will need throughout the process of buying a home, is patience. The lenders will ask for a good amount of paperwork, but if you get the right guidance and you are willing and able to cooperate, it will be a smooth transaction. I hope you give me the chance to be that person to help you.