If you are thinking about buying your first home or your 100th home, there are a few things you need to know. This also goes for those of you who already own your home, but you are considering refinancing your current mortgage.
The first item that I believe is the most important item for you to know is simple. Good credit is better than cash. Now this does not mean that cash is not important, but most buyers cannot afford to buy a home without a mortgage. So if you have 3, 5, 10 or 20 percent of the purchase price available that is great, but without 100 percent of the cash needed, you need good credit.
You get good credit by having a few credit cards, maybe a vehicle loan and by paying them on time. To make your credit even better, you pay more than the minimum required on the credit cards - and if you pay them off monthly your credit improves even more.
I suggest that once each year you obtain a copy of your personal credit report and spend a few dollars to get a report with the credit scores.
The second item that you need to know has to do with reserves. A reserve is a place where you have cash or cash equivalents available to you. These include IRA's, 401k's, savings accounts, checking accounts, certificate of deposit and similar accounts. These accounts must have funds in them after you close the mortgage loan and are basically emergency funds.
By emergency funds the lenders want to see that you have money stashed away to cover the mortgage if, let's say, you break your leg moving into your new home. The lenders' underwriters want to know that there is cash somewhere where you can get you hands on it if really needed.
The third item you need to know about concerns your personal debt. If you are planning to buy a home or refinance your mortgage do not, I repeat, do not go out and buy a new car, truck, boat, snowmobile or any other high-ticket item prior to closing the home mortgage.
If your personal income is such that you can do both, be sure to get the "OK" from your mortgage professional first. As an example, a $500-a-month vehicle payment is equivalent to a $100,000 mortgage. So buy the big-ticket item on the way home from the real estate closing, not prior to it.
The fourth item you need to know about is your employment status. Lenders like to see documentation that you are gainfully employed and that you do have a monthly income. So do not quit your job or retire in the middle of the mortgage process.
So here are four simple items to remember if you are applying for a mortgage. One, good credit; two, reserves; three, personal debt; and four, employment. With those four items in mind you will have a much better chance of getting a mortgage and the better you are in each category, the better chance you have of getting a really good interest rate.
For answers to your mortgage related questions call Bob Kieber at (970) 453-4700 or email him at email@example.com. Bob is a local mortgage lender with Centennial Bank. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country. Member FDIC, Equal Housing Lender. NMLS Bank #401640 Broker #289610. For tax benefit information please consult with a professional tax advisor. The opinions expressed are those of the individual, and do not necessarily reflect those of Centennial Bank.