Silver Lake Realtors say as the U.S. economy continues to re-establish from the recession that was almost nine years ago. A handful of individuals are seeking to purchase homes after years of renting or staying put in a previous house.
As a result, the Silver Lake Real Estate market is competitive in many ways, requiring buyers to put in aggressive offers and, in some places, compete with deep-pocketed investors paying cash. Pretty much what this means is that—now more than ever—you need to be qualified for a mortgage before you shop for Silver Lake Los Angeles Real Estate.
Understanding Today’s Mortgage Market
Before the housing crisis of 2008–09, it seemed that anybody with a pulse could get a mortgage (or two or three). Lenders pushed “sub-prime” loans on people with poor credit knowing the entire time that the applicants couldn’t afford the payments and would eventually default.
These lending traits were obviously unsustainable, and we know the rest of the story. The banks got bailouts while millions of homeowners either lost their homes or got stuck underwater, owing much more on their mortgage than their home was worth.
Even as the real estate market starts to build back up, the mortgage crisis has left its mark. Mortgage underwriting—the criteria banks use to figure out whether to make a loan—is more stringent.
That’s not to say that young couples or other first-time home buyers will have a difficult time getting a mortgage. But it means that proving to the bank that you’re financially prepared for a mortgage is more crucial than ever.
What It Takes To Get Approved For A Mortgage
Prior to completing a mortgage application or even strolling through an open house, you’ll want to know these things:
- Your monthly income
- The sum of your total monthly debt payments (auto loans, student loans and credit card minimum payments)
- Your credit score and any credit issues in the past few years
- How much cash you can put down
- How much house you can afford (Use our simple calculator to estimate this
Silver Lake Real Estate Tip #1: Calculate Your Income and Your Monthly Debt Obligations
Most Silver Lake Real Estate Agents will tell you that the first step in preparing to apply for a mortgage is to document your monthly income and debt payments. You’ll need to provide at least two weeks of pay stubs to your lender, so it doesn’t hurt to start collecting those.
If you’re self-employed or have variable income, expect the underwriting process to be a bit more involved. You may, for example, have to submit copies of your past one or two tax returns. The lender may then count the average of your last two year’s income or the lower of the two numbers.
Getting approved for the mortgage you want is all about staying within certain ratios lenders use to determine how much you can afford for a mortgage payment. Silver Lake Real Estate Agents say that large debt payments (like an auto loan or big student loans) will limit the size of the mortgage approval you can get. If possible, pay these loans off or, at the very least, avoid taking any new loan payments on.
Silver Lake Real Estate Tip #2: Give Your Credit Health A Checkup
Silver Lake Real Estate Agents say before applying for a mortgage, obtain both your credit score and your credit history report. You’ll want to verify there are no errors on the report or recent derogatory items like late payments. Since you may spend months shopping for homes, you might want to consider subscribing to a service that provides regular credit report monitoring for around $20 a month. You can cancel this after you close on your home.
As for your credit score, Silver Lake Real Estate Agents will often advise to apply with FICO credit score of at least 680 and preferably above 700. Anything less and you may need to find a highly-qualified cosigner or take time to improve your credit before getting mortgage approval. Silver Lake Realtors say the lower your credit score, the higher the mortgage rate you’ll pay.
If your credit is just under 680, you may consider an FHA loan. These government-insured loans allow lower credit scores and much lower down payments, but there are significant additional costs.
Finally, our Silver Lake Real Estate Agents suggest that you don’t apply for new credit in the few months leading up to your mortgage application. Banks get suspicious if it kinda appears like you’re piling on the new credit.
Silver Lake Real Estate Tip #3: Determine Your Mortgage Budget
Before ever speaking with a mortgage officer, you’ll want to determine how much house you can afford and are comfortable paying (two different things!).
A general rule is that your total housing payment (including fees, taxes, and insurance) should be no more than 35 percent of your gross (pre-tax) income.
As an example, if together you and a co-buyer earn $80,000 a year, your combined maximum housing payment would be $2,333 a month. That’s an absolute, max, however. Our Silver Lake Real Estate Agents recommend sticking with a total housing payment of 25 percent of gross income. You’ll find other readers here who are even more conservative.
Silver Lake Realtors say it can be hard to equate this monthly payment to a fixed home price, as your monthly housing payment is subject to variables like mortgage interest rate, property taxes, the cost of home insurance and private mortgage insurance (PMI), and any condo or association fees.
Silver Lake Real Estate Tip #4: Figure Out How Much You Can Save For A Down Payment
Next, our Silver Lake Real Estate Agents say you need to figure out just how much you can save for a down payment to put towards your first home. In today’s market, expect your mortgage lender to require at least a 10 percent down payment unless you’re getting an FHA loan or another special program loan.
If you have it, think about putting 20 percent down to avoid private mortgage insurance (PMI)—costly insurance that protects your mortgage lender should you foreclose prior to building sufficient equity in the property.
Our Silver Lake Realtors suggest you commit to the maximum you want to spend before beginning the mortgage approval process. Real estate agents, your own desires, and some unscrupulous mortgage lenders may try to tempt you into buying a more expensive home than you can afford, perhaps rationalizing the decision by reminding you that real estate is bound to appreciate.
That may happen, but our Silver Lake Realtors suggest you take a smaller payment you can afford in good times and bad over a bigger one that you may lose in foreclosure.
Silver Lake Real Estate Tip #5: When and Where To Apply For Your Home Mortgage
Most Silver Lake, CA Realtors will tell you can meet with a mortgage lender and get pre-qualified at any time. A pre-qual simply means the lender thinks that, based on your credit score, income, and other factors, you should be able to get approved for a mortgage. It’s informal and totally non-binding.
As you get closer to purchasing a home you’ll want to seek pre-approval. You can meet with a local bank, credit union, or mortgage broker. In some cases, you can even get pre-approved online from any number of national online mortgage lenders.
Wherever you go, Silver Lake Realtors say this pre-approval isn’t binding, but it’s a formal(ish) indicator of your ability to get approved for a mortgage. Most sellers will want to see a pre-approval within a couple days of receiving your offer.