You should try to get pre-qualified by a lender prior to shopping for a home. A pre-qualification is a strong marketing tool when making an offer that may contain many a number of seller concessions. Telling a seller that you are already pre-qualified for a loan makes the acceptance of a low offer much more palatable.

How to Maximize Your Income

Most lenders will require that you disclose your income from the previous few months and use this income to qualify you for a mortgage. They will ask for tax returns, or bank statements to verify the income. The lender will then apply a formula to the income to determine your ability to repay the loan. A common requirement is that the mortgage payment cannot be greater than 30 percent of the borrower's gross monthly income.

One way to expand your purchasing power is to obtain a low, low interest rate mortgage such as a variable rate mortgage. They may offer up to a rate of 2.5% percent under the going rates. The disadvantage to these types of loans is that the rates are subject to change as frequently as every few months. If your interest rate is linked to the JIBAR rate it will be subject to more regular changes. This type of loan can however add thousands to your purchasing power due to the low initial rate.

If you don't have the stomach for a variable rate mortgage, explore fixed rate type loans. The rate will stay the same over a certain period, after which you can renegotiate with your lender. The only negative is that if interest rates are going down, that you will increase your borrowing cost.

Finding a Bargain Home

One of the clichés of the real estate world is the most important thing to consider when buying a home is "location, location, location." That also applies when trying to find a bargain in a home. Generally it is better to buy a "fixer-upper" in a terrific neighborhood rather than a great but bargain-priced home in a less desirable neighborhood. There are always bargains in run down areas, but while these houses may offer a lot of house for the rand, they will be difficult to sell and may have little or no appreciation despite the time, energy, and money you have poured into them.

Forget about buying a home from the newspaper auction notices, they are difficult to purchase and better left to the pros. Instead foster a relationship with a real estate agent and remain loyal to that agent. You want to find a home that may need some cosmetic work but is basically sound. Estate sales are probably the best area you want to explore, and try to investigate listings that have been on the market for awhile. Keep in mind that the reason a property has been on the market for a long time is because it is less desirable for some reason. Remember, most every property has its price and will ultimately sell when the price/value ratio becomes attractive.

If financially able, look to buy a home during periods of high interest rates or economic recession. During those times home prices may drop or the seller will be more amenable to accepting low offers. High interest rate periods don't last forever, and when rates come down or the economy improves you can refinance for a lower rate and even take out some excess cash from appreciation.
 

Credit Scores and Below Prime Loans

Prior to the early 2000s home buyers had to have a very good credit history to qualify for a loan. Those who had auctioned off properties, repossessions, or bankruptcies in their history were told to wait seven years and to walk the straight and narrow credit path in the meantime. The good news, however, is that now many more people are eligible to obtain a mortgage albeit at a higher than the prevailing rate.

During the 2000s credit scoring also came into effect. Credit scores attempt to classify a person's credit history into one three-digit number ranging from 300 to 900. A credit score of 650 or above is deemed to be a "good" credit risk by many lenders, the higher the better. In fact, a credit score of 700 or above can allow for a 100 percent LTV loan at only a little higher interest rate. A score of 625 may be acceptable, but scores from 525 to 625 usually fit into the sub-prime loan category. A score under 500 makes it very difficult or impossible to obtain financing of any sort.

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