The ABC's of Real Estate Financing

Congratulations, you have taken a big step in deciding to take part in the American dream of home ownership. So, what are the ABC steps toward accomplishing your goal of home ownership? We will start with what the "A" stands for.

"A" stands for accessing and reviewing your credit history prior to your mortgage pre-qualification. You can contact the major credit agencies and request a copy of your credit history and your FICO score. There is a small fee for this service. The 3 major credit agencies are;

Equifax 1-(800) 525-6285
Experian 1-(888) 397-3742
Trans Union 1-(800) 680-7289

The FICO credit score will be between 350 to 850 score. If your score is below 700 you will pay
A higher mortgage payment. The following is an example from MYFICO.com as of February 24, 2009 What you will be for a national average for a 30 year fixed rate mortgage based upon the loan balance of $300,000. The source was Info researchers Services.

FICO Scores Monthly Mortgage Payments (APR) Mortgage rate
760-850 $1,560 4.720%
700-759 $1,600 4.942%
680-699 $1,632 5.119%
660-679 $1,672 5.333%
640-659 $1,753 5.763%
620-639 $1,859 6.309%

So, you can see dear reader how important it is to access and review your credit history prior to
Applying for a mortgage. Notice the correlation between the lowest payment of $1,560 to the highest payment of $1,859 due to the mortgage interest rate.

What does the letter "B" stand for? Begin to gather your supporting documents for your mortgage application. The supporting documents include the following; your 2 most recent pay stubs, your 2 last years of complete tax returns, your prior year W2 form. Those document help support your income qualifications. Also save your 2years worth of bank statements all pages, your 2 most recent quarterly statements from your retirement savings accounts. If you have a limited credit history, save all your cancelled checks made payable to your land lord. For the past two years, copies of checks made out to your utility companies, phone bill, student loan payments, auto loan payments.

"C" stands for contact and close with your mortgage company. When you are shopping for the best mortgage company, terms and mortgage rate, tell the mortgage loan officer your FICO score, your monthly Gross income, your monthly payments to your credit cards, auto loans, student loans, and your monthly rent payments or mortgage payments. Also let him know how much you have as assets saved up.

The mortgage process called "Pre-Qual will determine how much home your can afford to purchase. The first step is to determine, what the monthly cost of home ownership is against the monthly gross income. The monthly cost include the mortgage payment, property insurance, and property taxes. In the industry this is know as (PITI). Your payment percentage against your monthly gross income should be around 28%.

The second step is to determine your debt to income ratio. The mortgage loan officer will add up your credit bills, such as auto loan payments, student loan payments, credit card debt, and that percentage should not exceed 36%.

With today's underwriting guidelines, in order to purchase a home, you should expect to put down
As a down payment at least 10% of the mortgage loan amount. If you apply for a government (FHA) loan the down payment amount is only 3% down. Your credit history, income history, and debt to income ratio, will determine which mortgage programs that you can qualify for.

Once you have completed the home inspection on your prospective new home, and signed the
Purchase and Sale agreement with the sellers, you can then formally apply for your mortgage loan. The next step in the loan process will be to determine the Loan to Value (LTV) of the property. That is done by ordering a paying for an appraisal. The (LTV) will make a final qualification for your loan. This is due to the difference in the amount of equity from the appraised value of the home to the amount owed on the mortgage loan.. You will also be having title search completed by an real estate attorney.

It is at the mortgage closing, where you will receive the keys to your new castle. You will be also signing two important and lengthy documents. The mortgage note and the mortgage deed. So dear friends we now know and understand the ABC's of Real Estate Financing. Congratulations on your new home.