Getting ready to Apply
The most common question on everyone's mind is "Am I qualified"? So let's take a look at what the qualifications are for an Ijara™ transaction and what you can do to prepare yourself if you are not quite ready now. Also see Common Mistakes that could affect your credit.
In simple terms one must have reasonable credit, enough money in current accounts to satisfy the down payment, closing costs and reserves, and sufficient income to afford the monthly payment.
The three main issues regarding qualification are:
- Credit - The minimum credit score to qualify for an Ijara™ transaction is 640, in some cases we can finance a lower score but that is on a case by case basis and subject to the underwriters discretion. More information on credit and how to improve your score can be found under the credit section under the general information tab.
- Down payment -There is a seasoning requirement for all monies used for the down payment, closing costs and two month reserves. Basically, you must show enough funds in the beginning and ending balances in your accounts for the past two months. Any large deposits have to be verified and proper supporting documentation sourcing those deposits provided. It is possible to receive some gift funds, provided the gifts are from family members. Gift funds cannot be used if the property you are purchasing is an investment or second home. We would suggest not making any transfers or large deposits during the course of your application without first contacting us to make sure you have the proper document trail. Nothing is more frustrating to all parties than when a customer suddenly makes a large deposit. People usually don't understand that the source of funds is important for several reasons, first because of the Patriot Act, and second because the underwriters have to verify that there is no repayment required on the funds as that impacts your debt to income ration or DTI.
- Income - During the final approval process, the underwriter needs to confirm that you are purchasing a home that you can afford. For this purpose there is a DTI calculation, a debt to income ratio, which has to be below a certain percentage. The percentage varies depending upon the program you apply for. Ideally your DTI ratio will be below 39%, but could go as high as 45% and in some rare cases an exception for up to 50% can be achieved. The DTI ratio is calculated by adding up all of the minimum monthly payments on your debts i.e. car loans, student loans, credit card payments, etc. and dividing that total by your gross monthly income.
You will also need to get all your documents in order, here is a list of what you will need:
1) Your Residence History. You will need
- Your previous addresses for the last 2 years
- The length of time you’ve lived in each place
- If you currently rent, your landlord’s name and address
2) Your employment History. You will need to know
- The names and addresses for ALL your employers for the last 12 months
- The dates you worked at each place of employment
- If there have been any gaps in your employment and why
3) All Outstanding Loans and Credit Cards. For each account you will need (This we can generally obtain from your Credit Report)
- The creditor’s name and address
- Your account number
- The current total balance you owe
- The amount of the monthly payment
- How many months left to pay
4) Savings, Checking or Investment Accounts. For each account, you will need (This we can obtain from copies of your account statements)
- The name and address for each financial institution
- Your account number
- The Current balance or value
5) Real Estate You Currently Own. For each property, you will need to know
- The property address
- The estimated market value
- The outstanding loan balance (s)
- The amount of your monthly payment
- The amount of your monthly rental income (if applicable a copy of the existing lease)
6) Personal Property You Own. You will need to know
- The net cash value of your life insurance
- The make, year, and value of your automobiles
- The value of your furniture or other personal property
You can view the specific requirements for each program and determine whether this would be the right time for you to apply or you can contact us and we would be happy to help you understand your options, you can also view house buying tips by Jeff Ostroff.