Adjustable-Rate Mortgages

At first glance, getting approved for a home loan may seem like a long
list of never-ending questions. In reality, it’s pretty simple. The lender
simply needs to confirm a few items regarding employment, your finances
and the home you’re hoping to buy. At Partner Colorado, we streamline
the process, so it’s hassle-free and easy. Here’s a convenient pre-approval
checklist to get you started.

• Completed application 
• Estimated annual household income (be sure to include Social Security, child support, government assistance, etc., in addition to your salaries)
• Estimated monthly household debt (auto and/or student loans, mortgages, credit cards, etc.), including outstanding balance, account number and minimum monthly payment on each
• Past two years of residential history including landlord name and
  contact (if applicable)
• Current employment/proof of income (two most current paycheck stubs showing year-to-date earnings or, if self-employed, the last two year’s tax returns, including all pages and schedules)
• Two years of W-2 or I-9 tax forms
• Proof of personal assets (cars, property, 401k, retirement plans, or life insurance policies that include a cash value, etc.)
• Two most recent bank statements for all checking/savings, CDs, IRAs, stocks, bonds, etc.
• Disclose and explain any past credit problems including bankruptcies, foreclosures, etc.

Credit, income, down payment and assets all figure into a lender’s decision on your eligibility for a home loan. A general rule of thumb is that your payment, consisting of principal, interest, taxes and insurance (PITI) should not exceed 28% of your household gross income. Different circumstances (e.g., excellent credit), however, can take that number up to 40%. And remember, even if you fall short in one of these four areas, typically, Partner Colorado has the expertise and loan you need to help you achieve your goal of home ownership.

Your credit score (known as FICO), as well as the information on your credit report, are key considerations for loan approvals. Your FICO score, based on the data in your credit report, predicts how likely you are to pay off your bills in a timely fashion. Typically, the higher the FICO, the lower the interest rate. Ideally, you’ll have a score of 740 or higher, but a minimum FICO score of 620-640 or above is necessary to qualify for a home loan.

After considering your FICO score, a lender looks at your actual credit report. Large amounts of outstanding debt and high monthly payments are a red flag, limiting your ability to get approved. In addition, your credit report demonstrates payment history, longevity of credit and if you have any defaults or outstanding judgments against you. Be sure you know what is on your report that might impact your ability to qualify for a loan before applying. And take heart, there are ways to improve your FICO score and credit report should that prove necessary...some as simple as identifying and correcting errors.

You’re entitled to an annual free credit report from each of the three nationwide
reporting agencies. Visit the authorized website annualcreditreport.com or simply call 1.877.322.8228. You’ll need to verify your identity to acquire the reports.

The good news is that today’s buyer can qualify with a much lower down payment than in the past. In fact, many loans allow as low as 3%-5% down. That means you can stop renting sooner, or buy more home with the money you’ve saved. Just keep in mind, the disadvantage of having less than 20% down is PMI. Even if you choose a low-down FHA loan, typically 3.5% of the sales price, you’ll be required to pay mortgage insurance for the life of the loan.

If you’re in the market for a home, chances are you’ve been saving up for a down payment. Lenders will need to verify that you have the necessary funds available. In addition to your own personal savings, the following are acceptable ways of coming up with cash for a down.

• Gifts: Current tax laws allow gifts of up to $12,000 annually.
• Repurpose your IRA: If you’ve never owned a home, the IRS allows you to use up to $10,000 in IRA funds as a down payment (up to $20,000 if you’re married). Consult your tax adviser for more information.

Your Debt-to-Income ratio (DTI) compares how much you earn (gross income) to the amount of money that you owe. When evaluating you, lenders will include the estimated mortgage expenses along with other monthly bills (utilities are not used for this calculation) to determine your DTI. A low DTI, 43% of your gross monthly income or less, is considered favorable. Use our calculator to see where you stand.