You should check your own credit before searching for a home in the San Fernando Valley. The reason is that you will be aware of any negative items that you may not have known about. A mortgage lender will run your credit in order to "qualify you" for a mortgage so it is recommended that you check your credit preliminarily to eliminate any future problems. Being eligible for the best interest rates and discounts on homeowner's insurance are benefits to those who have excellent credit. It is free and easy to obtain a copy of your credit report.
You may request a free credit report from Experian, Trans Union or Equifax once a year. The three credit reporting agencies are:
1) Experian www.experian.com (888)397-3742 P.O. Box 949, Allen TX 75013-0949
2) Trans Union www.transunion.com (800)888-4213 P.O. Box 390, Springfield, PA 19064-0390
3) Equifax www.equifax.com (800)685-1111 P.O. Box 740241, Atlanta, GA 30374-0241
You may also call (877)322-8228 or visit www.annualcreditreport.com to request a copy of your free credit report.
The first step in beginning the home buying process is to get prequalified or preapproved. When you submit an offer on a property with a preapproval versus a prequalification you will be a stronger candidate in the seller's eyes. Having a preapproval will be beneficial to you especially if there are other offers on the table from other prospective buyers.
A prequalification means that you have filled out an application and a mortgage lender has checked your credit. A preapproval is going a step further and providing your income documentation (bank statements, tax returns, pay stubs etc) to the lender to verify your income and assets. A benefit to being preapproved in advance is that it enables you to close escrow sooner.
There are two ways a mortgage lender determines how much you can afford. First, the most amount of debt you can have cannot exceed 30% of your gross income including your mortgage. Secondly, your mortgage payment cannot exceed more 28% of your monthly gross income. The ratios above are standard requirements for most lenders in order to get a conventional loan.
However, there are other types of loans that are easier in which to qualify and may offer flexible down payment options, rates and terms. Some of them include FHA or VA loans. You should contact a reputable mortgage lender to discuss the different financing options available to you. You can ask your Buyer's Agent, friends, family or associates for whom they have had good luck with in the past.
It is important to have your interest rate locked in as soon as possible after finding a home and getting preapproved. A rate lock is good for a specific amount of time and has an expiration date. You must finalize the loan and close escrow before it expires otherwise the interest rate can go up and cost you more money each month in the end.
