Housing Services Resources

Having a steady job helps you to keep your promise to pay back a mortgage loan. If you have been working continuously for two years or more, you are considered to have steady employment. A lender will need to know your job history, and it will be a major factor in whether you qualify for a loan. However, you do not have to have held the same job for two years in order to be approved for the loan. Job moves that result in equal or more pay and continue to use proven skills are a plus for you. If you have been working continuously for less than two years, the mortgage lender will look for an explanation.

There may be a good reason:

• You may have been discharged recently from the military or just finished school.
• Your work may be seasonal, and you might have work gaps between seasons.

There may be other acceptable reasons why you have not been employed continuously for two years. For example, you may have been laid off because of a plant closing or an illness. Or you may be in a line of work in which frequent job turnover can be customary, but you have been consistently employed and have maintained a regular, steady level of income.

How you paid your bills in the past gives a lender some indication of how you can be expected to pay them in the future. When you apply for a mortgage, you will be asked to list all your debts, the amount of your monthly payments, and the number of months or years left to pay on the debts. Your lender will also order a credit report to verify the information that you give and to check on how well you have kept your promises to repay your debts.

If you have previously owned a home, and your mortgage has been foreclosed upon within the last seven years, the foreclosure will be revealed on your credit report. Having a foreclosure on your records doesn’t mean you can never buy another home. Your lender will want to know the reason for the foreclosure, and most prefer that three years go by before you apply for a new mortgage.

If you have declared bankruptcy within the past ten years, that also will be revealed on your credit report, and it will be helpful for you to explain the circumstances surrounding it. Lenders usually prefer that you wait two years after discharge of the bankruptcy before assuming a new large debt like a mortgage loan. This gives you time to reestablish credit and show that you are again able to manage your financial affairs.

If your credit report shows that you do not have a good credit history, and the information reflected is correct, you should probably delay trying to buy a home and take steps to improve your credit profile. For example, you may have too many debts, or you may pay some debts late each month. If so, you should work to bring your payments up-to-date and to pay off some of your debts. After you have decreased the amount you owe and are able to show at least a 12-month history of making payments on time, you may be ready to talk to a lender to see if you can be preapproved for a loan.

If you have never had any credit cards or taken out a loan through a financial institution, the various credit reporting agencies may not be able to issue a credit report on you. In that case, your lender may be able to use a “nontraditional” credit history. For example, the lender can document that you pay your rent, telephone bills or utility payments on time each month. You can put these records together yourself by making copies of canceled checks or showing copies of monthly bills that do not have any late charges.

When you buy a home, depending on the type of loan you get, you may need money that you have saved for a down payment and “closing costs.” The amount of the down payment varies, but a good guideline is that you may need a down payment that equals 3-5 percent of the purchase price. You will also likely need money for closing costs, which can be expensive. However, sometimes the property seller is willing to pay part of your closing costs.

The mortgage lender will want proof that you have saved the funds that you will use for a down payment and part or all of the closing costs. If the funds are in a savings account, the lender will ask the financial institution to verify the amount and the length of time that the funds have been in your account. The lender wants to make sure that you are not borrowing all the money you will use for the down payment and closing costs.

Some communities have programs to help first-time buyers. With some of these programs, you may be able to accept a gift from a relative or to borrow a portion of the money you will need for the down payment and closing costs from a local nonprofit organization or government agency. With others, you may be able to get a grant or other funds that you will not have to repay and can use to cover some of these costs.

If you do not now have at least a portion of the money saved, this probably is not the right time for you to try to buy a home. Instead, it would be a good idea to open a savings account and begin putting away some funds from every paycheck. The longer you have accounts and the longer and more consistently you have been able to save money, the better you will look to lenders when you are ready to apply for a mortgage in the future.

The amount of your monthly payment depends upon the amount you borrow, the interest rate, and the repayment period or “term.” Besides the principal payment on the mortgage and interest there are other expenses that will be added to your monthly payment. These include taxes and homeowner’s insurance. If your down payment is less than 20 percent, you may need to pay private mortgage insurance. These costs vary depending upon where you live and the cost of your home, but they can add a hundred dollars or more to your monthly payment. In addition, if you are thinking about buying a unit in a condo or cooperative building, or a house in a planned unit development, you may also need to pay monthly homeowner’s fees to cover maintenance expenses or special assessments related to the common areas.

Lenders use a couple of guidelines to determine the maximum payment you can afford per month. The first guideline suggests that your monthly housing costs (including mortgage payments, property taxes, homeowner and mortgage insurance, and homeowner’s fees) should total no more than 28 percent of your monthly gross (before taxes) income. The second guideline suggests that your monthly housing costs plus other long-term debts (debts with more than ten months left to repay) should total no more than 36 percent of your monthly gross income.