Chicago's North Shore - North and Northwest Suburbs Real Estate Archive

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Be a Power Buyer: The Pre-Qualification Process

by Allyson Hoffman

You're ready to buy a home, but do you really know how much you can afford?

Before you set out on your new home search, it is important to know how much you are able to afford.  This is referred to as being pre-qualified, which is different than being pre-approved and can be accomplished through a preliminary interview with your prospective lender.  During the pre-qualification process you will learn a number of different things about your finances such as:

  • How much home you can afford
  • The amount of down payment you will need
  • The minimum down payment and the advantages of higher down payments
  • What the bank feels you can afford for a monthly payment

Determining this information ahead of time will also assist your agent in finding the right properties for you to look at that fall within your budget.

The next recommended step is to be pre-approved.  This step is more involved.  Your lender will need to review your finances in greater detail, including running your credit profile, to determine how much money they can tentatively agree to loan you for your home purchase. Your lender will review the following:

  •  Gross Monthly Income
  • Credit History
  • Amount of any/all outstanding debts
  • Source and amount of money available for down payment and closing costs
  • Type of Mortgage
  • Interest Rates, etc.

Analysis of this information will allow the lender to determine two important ratios:

  • Debt-to-Income Ratio
    Your bills/debt each month should not exceed 36 percent of your gross monthly income
  •  Housing Expense Ratio
  • Your monthly mortgage payment should not exceed 28 to 33 percent of your gross monthly income

Though there may be some flexibility in these ratios (depending upon the lender and the type of loan program you prefer), submitting your information to your lender’s automated underwriting program for approval should provide you a greater sense of confidence in your ability to secure the financing you’ll need to reach your objective.   With a strong pre-approval in hand your offers to sellers should be better received and more likely to be seriously considered.  For more information on the home buying process, please feel free to contact me for additional information or assistance.

Allyson Hoffman, ABR, ACRE, CDPE, CRS, e-PRO, GRI, SFR, SRES
RE/MAX Villager
Serving Chicago's North Shore, North and Northwest Suburbs
847-310-5300
[email protected]

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Allyson Hoffman is your ultimate real estate resource for Chicago's North Shore, North and Northwest Suburbs and surrounding areas. Visit my website for detailed information regarding today’s real estate markets.

Credit Scores: Important!

by Allyson Hoffman

Although lenders want to make loans for those in the market for a Northern Illinois home, this difficult economy has made it where only the best credit scores will be approved. While many Americans are struggling to make their monthly payments and hang onto their high credit scores, mortgage companies and other lending institutions are being forced to tighten their belts and credit qualifications are more important than ever before.

Those rock bottom interest rates? They are reserved for top tier credit risks – borrowers who have scores of 720 and above. Your banker is also looking for thorough documentation of your income and assets. Keep in mind that from mortgages to car loans, your credit history and score matter more than they did

If you're buying a new Chicago North Shore home or refinancing the mortgage on your primary home, you'll need a minimum down payment of 5% to 10% for a conforming loan or 10% to 15% for a conforming jumbo loan (125% of a metro area's median home price, up to $729,750).

Fannie Mae and Freddie Mac will take a credit score of 620 if you have at least 25% equity in the property or a score of 660 with equity of less than 25%. Oh and that debt to income? Make sure it’s at 36% or less.

In addition to stellar credit history lenders look for:

  • Proof of income – You’ll need to show pay stubs for the past 30 days and W-2 forms for the past two years, along with retirement-account and investment statements.
  • Self-employment – Be prepared to give up  two years of tax returns and keep your fingers crossed. It’s become harder than ever for declared income borrowers to get mortgages and other lines of credit.
  • Rental income - You can use only 75% of rental income to qualify for a mortgage, along with 30% equity in your former home.

Even if you are preapproved, you will be subject to a second or final approval – lenders will pull a second credit report before closing. If you have taken on any new debt, your deal may go right out the window. Home equity loans are tougher to get now as well. In most areas you'll be able to borrow no more than 80% of the appraised value – and that’s with your perfect credit score.

The long and the short of it is this: take care of your credit! It can be very challenging in this economy, but your credit history and score are more important than ever!  Bad lending practices have resulted in extremely tight standards that will give credit only to the highest scores. Those who have enough cash and income that they may not even have the need to borrow the money to begin with. 

 /kh

Image courtesy of StockMonkeys.com/Flickr.com

Your Credit Score-More Important Than Ever

by Allyson Hoffman

Lenders are telling us that they want to make loans, but in this difficult economy, those with the best credit will be approved. While many Americans are struggling to make payments and hang on to their good credit scores, mortgage companies and other institutions are tightening their standards and credit qualifications more than ever before.

Those rock bottom interest rates? They are reserved for top tier credit risks – borrowers who have scores of 720 and above. Your banker is also looking for thorough documentation of your income and assets. Keep in mind that from mortgages to car loans, your credit history and score matter more than they did

If you're buying a new home or refinancing the mortgage on your primary home, you'll need a minimum down payment of 5% to 10% for a conforming loan or 10% to 15% for a conforming jumbo loan (125% of a metro area's median home price, up to $729,750).

Fannie Mae and Freddie Mac will take a credit score of 620 if you have at least 25% equity in the property or a score of 660 with equity of less than 25%. Oh and that debt to income? Make sure it’s at 36% or less.

In addition to stellar credit history lenders look for:

  • Proof of income – You’ll need to show pay stubs for the past 30 days and W-2 forms for the past two years, along with retirement-account and investment statements.
  • Self-employment – Be prepared to give up  two years of tax returns and keep your fingers crossed. It’s become harder than ever for declared income borrowers to get mortgages and other lines of credit.
  • Rental income - You can use only 75% of rental income to qualify for a mortgage, along with 30% equity in your former home.

Even if you are preapproved, you will be subject to a second or final approval – lenders will pull a second credit report before closing. If you have taken on any new debt, your deal may go right out the window. Home equity loans are tougher to get now as well. In most areas you'll be able to borrow no more than 80% of the appraised value – and that’s with your perfect credit score.

The bottom line – take good care of your credit. It can be very challenging in this recession but your credit history and credit score are more important than ever. Bad lending practices have resulted in tight standards that will give credit only to the top tier borrowers who have enough cash and income that they may not even need to borrow money in the first place.

 

 /kh

Displaying blog entries 1-3 of 3

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Photo of Allyson Hoffman & Paul Wells Real Estate
Allyson Hoffman & Paul Wells
RE/MAX of Barrington
306 W. Northwest Highway
Barrington IL 60010
Allyson: 847-310-5300
Paul: 847-913-6100

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RE/MAX of Barrington
306 W. Northwest Hwy.
Barrington, IL 60010

Allyson Hoffman
(847) 310-5300
[email protected]

Paul Wells
(847) 913-6100
[email protected]