Getting Your Finances In Order Prior to Obaining A New Mortgage Loan

In general LENDERs will want to keep your payment to less than 35% of you total gross income. This is based on the fact that over many years LENDERs have figured out the odds of you getting foreclosed on simply by the the debt to income ratio.

MORTGAGE LENDERs also take into consideration the fact that you have other debts and want to keep your MORTGAGE plus other liabilities under 45%. There are other expenses that LENDERs do not take into account and that is simply because your ratio has some room to reach 100%. Its advisable that you take an honest look at your finances prior to getting a MORTGAGE.

Will you absolute be fine at the end of the month with additional expenses such as child care, cable tv , groceries , cell phones. Its very important to creat a tally and see how much MONEY you will have at the end of each month. Have you considered emergency expenses, helping out a friend or flying out for a relatives funeral.

Once you have considered all the additional expenses you should write down a figure that you will be happy with each month and won't leave you stressed out. If you find your self stretching too far than consider not buying at this time or reduce the purchase price to 20% less than what you are qualified for.

Do you really need 3 bedrooms and 1800 square feet? The beauty of Real Estate is that after a period of decline you will have may have an increase prices and EQUITY. You could always add a room and update a smaller home. A lot of times this could mean a small profit for the homeowner due to the exponential increase in value that certain upgrades provide.

In order to get a good interest rate and a hassle free LOAN process there are some things you can do in advance.

CREDIT.

Make sure that you pay off CREDIT cards that have a small balance. If possible consolidate most of your CREDIT card debt with a single card. CREDIT scores are based on many factors and one of these includes the number of accounts that you carry with a balance. Keep you balance at or below 75% of the maximum balanced allowed by your CREDIT card provider. This too will help increase your CREDIT score.

Keep inquiries to a minimum at least 6 months prior to applying for a MORTGAGE. This is the time where you decline all new CREDIT card offers. CREDIT inquiries tell CREDITors that you are looking to accumulate more debt and therefore your CREDIT score drops so that you don't easily qualify for more debt.

If you have not done so make sure that you have established CREDIT not just for CREDIT cards but also installment LOANs such as auto LOANs or furniture financing. This proves to CREDITors that you can borrow MONEY and see it through by paying it off.

Student LOANs

Nothing is scarier to a LENDER than to see a list of 3-10 student LOANs on your CREDIT report. Start off by requesting a consolidation this will make your payments more affordable and will also reduce the number of outstanding accounts on your CREDIT. Also the fact that you have paid off your accounts will help your CREDIT score.

Income Documentation

When applying for a MORTGAGE you will be required to provide proof of your income. For most salaried or hourly waged employees this will not be a difficult process. However, the problems may come in when you are self employed. Make sure that you have filed all your recent tax returns and that you have a current profit and loss statement. Tax returns are verified with the IRS in order to prevent MORTGAGE fraud. Its never a bad idea to obtain a CPA letter verifying that they prepare your taxes.

Assets

LENDERs want to have evidence that you have the funds to see the transaction through and that you have reserves in case you are out of work for a few months. This proves to your LENDER that you are responsible and can take care of the MORTGAGE when problems arise. For you own peace of mind its never a bad idea to have at least six months worth of MORTGAGE payments when buying a home.