Michael Holigan: Newlyweds Tom and Carol Davis just did something they thought they would never do, they bought a new home. They were afraid they would have to settle for less, but to their surprise they qualified for more than they expected.
Carol Davis: I was very intimidated.
Tom Davis: I was somewhat intimidated as well. It's the fact of getting it through our minds we could actually afford something like this. And the unknown. Not knowing really what kind of questions and what we would have to have and are we solid enough to be able to afford a home of our own brand new right off the bat.
M.H.: To qualify for a loan, you need to provide the lender with financial documents. Bring with you the last two paycheck stubs, the last three months of bank statements and the last two years of income tax returns, with W-2 forms. Also, you'll need to write a check for around $400 to pay for a credit report and appraisal. Whether you qualify to buy this house or this house depends on something called ratios. Ratios are a formula based on your income, the cost of the home, your taxes, your insurance and your reoccurring monthly debt. Now different loans have different ratios. On a conventional loan, the lender will use a front ratio of 33% to determine how much monthly payment you can afford. Say your gross household income is $5,000 a month. You would be able to afford $1,650 a month in house payment. The back ratio is higher. On a conventional loan it's 36%. To keep with our example of $5,000 gross monthly income, at 36%, you could afford $1,800 a month for debt plus house payment. Whichever ratio is lower, the front ratio, or the back ratio minus your monthly reoccurring debt, is the maximum monthly house payment you qualify for. Before the Davis' applied for a loan, they moved in with his family and paid down their credit cards and other debt. That way they were able to afford a better home.
C.D.: I was nervous at first. We didn't hear anything for, gosh, it seemed like about a month. Three or four weeks at least. So I kept thinking, well, we're not going to get it because it's been so long.
T.D.: You're never really sure exactly how...what is it that they need to know. Is your credit good enough to stand up to some scrutinization like that. That type of reservation.
C.D.: Do you make enough money, what's on your report, that kind of stuff.
M.H.: Tom and Carol's fears were unfounded. Their finances were in order. Good credit and good jobs put them into a new house. But they could have saved themselves some time and worry by pre-qualifying for a loan. It's the same procedure, same cost, but just plan ahead before you're ready to buy.
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Episode 28 1996 - 97 Season
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