Last month, Align launched a Homebuying Expert Series on our YouTube channel to help all prospective homebuyers receive quick, essential tips on multifarious topics relating to purchasing a home. Topics included credit scores, applying for a mortgage, and the difference between being pre-approved and being pre-qualified. Every video ranges from 30 seconds to 3 minutes , so it will not take you long to watch all videos in the series and get yourself a good foundation of the process. Here’s a little more about some of the topics that are covered in the series:
Knowing Your Limits
A major aspect of the home buying process is knowing how much you can afford. There can be some serious pitfalls if you buy a home that is too far out of your price range. This is why our originators look at two important pieces of information when learning what your limit is. The Housing Ratio, and the Debt-to-Income Ratio.
The Housing Ratio is your mortgage payments. This includes principle, interest, taxes, and insurance. These are what your housing expenses are determined on. It is estimably 33% of your monthly gross income. It shouldn’t be more because there are other expenses you need to take care of.
The Debt-to-Income Ratio is all of the debt you have. Car loans, student loans, etc. This will be about 38% of monthly gross income. Many lenders will only raise the number to 43%. “Portfolio lenders”, such as credit unions, will allow you to stretch the number higher because they are using their own money.
Points are crucial to the homebuying process, and not many know anything about them. A point is 1% of the total of the loan. In our correlating video, Judy Dodier explains that you have an interest rate that is 3% and 2 points on a $100,000 loan, it will be $2,000 on just points. That is different than the other closing costs such as attorney and appraisal fees. Paying the costs for points up front can give you a better rate, but you have to evaluate if points are a good strategy for you. Between a 2 point rate and a 0 point rate, estimate how long you will be living in this house and how long it will take you to break even.
When You Don’t Have a Credit Score
While it is possible to buy a home without a credit score, it is not highly recommended. Without a credit score, they can look at your rent or your utility bills. What mortgage originators are looking for are 3 trade lines on your credit report. For an easier process, you can start on a $500 credit card and use it to pay things such as groceries, and building up your credit history. It helps to work with a portfolio lender that has flexibility to work with you on your score.
The 4 Cs of Credit Worthiness
These are the 4 “C” originators look at to determine your credit worthiness:
Character- Ability to Repay. How you have demonstrated how you pay your bills.
Capital- Debt-to-Income Ratio. How much room in in between to see if you can qualify.
Capacity- Funds for a down payment. What is being brought to the table through your income.
Collateral- Value of the property. How much the property is itself.
It is essential to get a home inspection. An appraiser will do their job and appraise your home, but a home inspector will look at every corner, check under every board, and go into spots around your home that you didn’t even know where there or even ever want to go to. You should go into your home knowing if there is lead in the paint, or if the roof needs work. These problems can help you discuss lowering the purchase price of the home.
For more topics in our #HomebuyingExpertSeries, you can watch all videos on our YouTube channel.