Discussion: Probably the biggest misconception in the marketplace is that people can buy a home without any savings. The “no money down” advertisements are everywhere. They lure people into calling about a mortgage or looking at a property by implying that a person doesn’t need any savings to purchase a home. The truth is that while there are 100% financing options available, most legitimate mortgage programs require some savings to qualify and close on a mortgage. Do your homework regarding whether or not you qualify for a mortgage. Depending on one’s credit, a bank may require 2- 4 months of total fixed bills, including mortgage payment, real estate taxes, homeowner’s insurance, association dues, PLUS all fixed payments such as credit card payments, car loans etc… For example, if a mortgage were $1500 per month, real estate taxes were $300 per month, insurance costs were $50 per month, and all other debt payments totaled $500 per month, the buyer would have $2350 per month in fixed expenses. A bank might finance 100% of a purchase if the borrower had 2-4 months total fixed bills, or “reserves.” (Reserves equal the amount of fixed bills/per month already in a savings account, which would be available should the borrower lose his/her job) So in this case, the borrower would have to have between $4700 and $9400 in the bank, today, to qualify for 100% financing. Then there are closing costs, usually around $2000-$4000 depending on the price of the home. Sometimes closing costs can be paid by the seller, but it’s important to know that in advance of applying for a loan.
Do not permit mortgage lenders to pull your credit until you are ready to apply for a loan. The old adage, “Knowledge is Power” really applies to those looking for a mortgage. One of the biggest problems people have with their credit is having their credit pulled too many times when shopping for a loan. You should pull your credit yourself with one of several free credit services. When you call the lender, you can tell him your credit score and your income and outstanding debts. This information will be more than enough for a lender to quote you a rate. The rate quote is not a guarantee that you’ll get a loan, but it will enable you to shop for the best deal without the lender pulling your credit. Too many credit pulls in a short time may cause the credit score to go down.
It’s hard work saving money. But if you have no savings, most likely, you cannot qualify for a loan. So start saving today! Even $50 per week will add up. Finally, don’t forget your community bank…start your mortgage search there. Most community banks offer far better rates than mortgage brokers. Their fees are substantially less and they have a better reputation for being honest and realistic about whether or not they’ll give you the loan. And they will be happy to review the credit report you get yourself off the internet with you in person. Ultimately, every lender will have to pull you credit for their internal approval process. But, if you have all the data up front, you will avoid the trap of too many credit pulls destroying your credit and your opportunity to buy your own home.
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