As a home buyer that intends on purchasing for the first time or the fifth time, the decision as to what type of mortgage is best is a lot different than it used to be. The days of stated income loans are now gone and may be forever. For years, these loans were made specifically for self-employed borrowers that were forced to use “net”  income (gross income – expenses)  rather than gross income like non self-employed borrowers.

Monthly credit card payments, auto and personal loans, child support and alimony payments are all taken into consideration as debt. The exception to the rule is if one is in receipt of child support or alimony payments. They are considered income to the recipient if the monies will be forthcoming for more than 3 years.

Debt to income ratios vary between the types of mortgages. A VA Mortgage allows up to 41% of a veteran’s income for housing and no money down.  FHA’s ratios are up to 43% and now the down payment has been increased from 3% to 3.5% down payment. Conventional mortgages now prefer 20% down for a primary residence. Investment loans can require up to 30% down.   Mortgage insurance is very hard to get these days and thus your options for low down payment loans are getting harder to qualify for.

Check with a lender in the area you will be making a purchase. Using a local mortgage company will make the process much easier. Long distance lending can become a nightmare. Voicemail makes it possible for someone out of area to not answer any phone calls especially if that person knows there is a problem that they want anyone to know about until they get it cleared up (or not). Using someone in the  area allows either you or your Realtor to personally visit and ask questions when necessary. The Mortgage Originator will guide you as to the best mortgage for you. Choices vary from a 30 year fixed, an Adjustable Rate Mortgage fixed for a certain amount of years, then will adjust up or down,  monthly payments, semi-monthly payments, automatic withdrawals, etc.

Having a pre-approval letter to submit along with an offer is golden in today’s marketplace. Submit your income tax forms for 2 years prior, allow credit to be pulled, substantiate all debt and your file will go to an underwriter. Once you are approved for a sales price letter will be issued that you are approved subject to an appraisal and any underwriting guidelines that are yet to be completed.

With the credit crunch we are all feeling at this point in time, a seller will feel more comfortable accepting an offer from a buyer who has already gone through most of the financing process over another buyer who has not.