Can I Buy A Home If I Have Collections?
Can I Buy A Home If I Have Collections? - If you have any outstanding delinquent debts that are being reported on your credit bureau as collections it may or may not affect your ability to purchase a new home. The type of debt and how long ago it occurred will be a couple of the factors the lender will take into consideration when looking at your collections.
If your broker is placing you with BC lender, most of the lenders don't care for the medical bills you have on your credit report.
There are some sub-prime lenders, also known as B/C lenders, who will not care about collections at all when you are buying a home or refinancing your home. Some lenders will allow open collections up to a certain total amount and they can not exceed that amount or they will need to be paid to buy a home. Other lenders will not allow you to buy a home with any collections present at all, even if it was just a $50 medical bill. This is a good reason why it is good to take a look at your credit yourself a few months in advance of obtaining a loan to see what is reporting to your credit report and if there are any items that you need to take care of or have corrected before you begin trying to buy a home and obtain home loan financing. Sometimes you may have old collections that have been paid for showing up on your credit still. It is amazing how many collection companies out there don't have problem reporting collection accounts to the credit bureau as quickly as possible but when you pay off the collection, they don't seem to care about properly reporting the fact the collection was paid to the credit bureau. Therefore, collections can impact the availability of which lenders you can use to finance your new home purchase. No collection accounts can open up a wider variety of programs and lenders for you to choose from while having a lot of collections can really shut the door on the use of many lenders and may require you to obtain a loan with terms that are not as favorable.
Depending on the lender, you can have collections depending on how old the collection date is and the amount. If the collection was filed over 24 months ago, most subprime lenders disregard those collections. Another factor a lender will look at is the total amount owed in collections. Some lenders will allow you to have collection amounts not exceeding $2000. Government collections however, must always be paid since they can become a lien that attaches to the title of the property.
Although you can leave collections open and still secure home financing the higher interest rate you will be charged by leaving them open may or may not cost you more over the life of the loan. Talk to your mortgage broker about financing options when open collections are involved.
Can I afford to buy a home? - Can I afford to buy a home? There are many different factors that go into deciding if you can afford to purchase a home. The most important factors are what is my present income and how much do I have saved. Borrowers can qualify for many different loan purchase programs however they must decide if they can afford it.
As far as most banks loan qualification guidelines are concerned, home owners should have debt payments, including mortgage and other necessary housing expenses, of no more than approximately 45% of gross income. However, since poeple have different spending habits, homeowners should decide for themselves how much of a mortgage can they afford.
A good rule of thumb is to keep your mortgage payment approximately the same as your current rent payment. If you have been able to pay a rent payment every month, then you should be able to afford a mortgage payment of the same amount.
Regardless of where you live, how much you earn or what type of house you are shopping for, as soon as you find out how much the seller is asking, your first reaction might be something like, “Wow! That's expensive!” Your initial assessment is correct. With prices rising quickly, particularly in areas like New York and Boston, even starter homes can carry hefty six-figure price tags. Your next reaction is likely to be, “Can I afford that?”
Generally speaking, most prospective homeowners can afford to mortgage a property that costs between 2 and 2.5 times their gross income. Under this formula, a person earning $100,000 per year can afford to mortgage between $200,000 and $250,000. But this calculation is only a general guideline.
Ultimately, when deciding on a property, you need to consider a few more factors. First, it's a good idea to have an understanding of what your lender thinks you can afford - to gain a precise idea of what size of mortgage their clients can handle, lenders use formulas that are much more complex and thorough. Secondly, you need to determine some personal criteria by evaluating not only your finances but also your preferences.
Many brokers are able to perform a rent vs. buy analysis that will not only compare your monthly payments, but also the potential tax savings, the appreciation of the home, and other factors you may not have considered. In many cases it is actually cheaper in the long run to purchase a home than to continue renting.
When considering to buy a home and figuring out how much you can afford, it is a good idea to sit down with your spouse and calculate your total monthly expenses. This should include all of your monthly bills such as car payment, credit card payments, cell phones payment, personal loans, cable/satellite television bills, etc... This way you can calculate how much you can comfortably afford to spend on a monthly mortgage payment and not fall into the trap of buying a home that is out of your price/payment range. Many homeowners and potential homeowners can qualify for homes and monthly payments that are much, much more expensive than what they can comfortably afford, while living the same lifestyle that they are used to. Please remember just because you can qualify for a $400,000 home does not mean you have to buy a $400,000. Buy a home because it meets your needs and most importantly it is within your budget comfortably. Allowing your home to own you instead of you owning your home has been an increasing trend over the past few years with the availability of all of the new mortgage programs and competitive underwriting programs available out there.
Can you afford to continue renting? Home ownership is the most popular investment tool. With a mortgage you gain equity be paying down principle as well as through property appreciation. You can also use the interest paid on your mortgage as a tax deduction. To determine if you can afford a home you need the experience and expertise of both a good loan officer and a good real estate agent. Together they will help you determine how much you can afford and if there are homes in your area that meet your preference and price range.
When someone asks "can I afford to buy a home?", he or she is often thinking of the short term of 1 or 2 years.
Instead, try thinking of the long term.
In many parts of the country, over a period of several years, homes increase in value by at least 5% a year. So, home owners have an asset that is growing.
At the same time, if their mortgage has a fixed rate, their housing expenses are staying relatively constant, unlike renters, who are seeing an increase in housing expenses generally of 3% to 5% a year.
So, in the long term, home owners have less money going out and an asset increasing in value.
Investing in a home is still one of the safest places to invest your money. Real estate will almost always appreciate and give a good return on the initial investment.
Why should you pay for someone else's mortgage? In a sense that is what you are doing when you are renting. Contact your mortgage professinal to see what price range of home is right for you and let your money work for you and not your landloards,