1. TALK TO A LOAN OFFICER –- even if you're not ready to buy IT’S FREE!! Not all loan officers are created equal! A mortgage broker can “shop” different products and some offer special programs that others do not. First-time home buyers can benefit from programs like IHDA or DPP that offer down payment assistance, but not all lenders are “on the list” to offer them.
Many future Buyers think they know what they can afford and would qualify for, but unfortunately, they are not always on the mark. Many factors come into play when qualifying for a loan: income, debt, credit score, employment, history of bankruptcy, foreclosure etc. By discussing these issues with a trusted lender and understanding your financial position, you can KNOW for sure your BUYING POWER! There are other things a lending expert can assist you with, like how to find sources for downpayment and closing costs, how to raise your credit score, and suggest ways to reduce your monthly qualifying debt. ASK GLACIER REALTY FOR A REFERRAL TO A MORTGAGE BROKER EXPERT
2. DETERMINE WHICH LOAN PROGRAM TO AIM FOR
There are many types of loan programs; conventional, FHA, VA, or USDA and many nuances within those. There are 3,2,1 buy downs or reverse mortgages as well as many other specialty products to meet all kinds of needs.
Each loan type has different requirements in order to qualify for them. For instance, conforming loans allow as low as 3% down payment while USDA and VA loans require no money down at all. With an FHA loan, you can qualify with a FICO score as low as 580.
Knowing which loan program you’re going to use will help you plan and save accordingly. So make sure you have a clear idea of what you’re working towards.
3. START A SAVINGS PLAN
The more you SAVE the more flexibility you will have with downpayment amount, closing costs and potential house fix ups. If you put 20% down, you will avoid paying private mortgage insurance as part of your monthly loan payment to your mortgage company (PMI). However, some loan programs, like FHA, can get you financing for as little as 3.5% down. If you qualify for a VA or USDA loan, no down payment is required. Additionally, a rule of thumb is to expect about 3% of the purchase price in closing costs in addition to the down payment.
Glacier Realty Brokers are seasoned Realtors and can explain how to get credits at closing to offset what you need to bring to closing, how to get a “grant” for down payment assistance, how to get “gift” funds and how to get rid of your PMI payment.
4. PAY DOWN EXISTING DEBT
A Buyers debt to income ratio is a key factor in qualifying for a mortgage and which ones. A Buyer may think they know which debts and how much of that debt to pay down or off in order to better their home buying power. BUT, the lender is the best one to tell a Buyer what the plan of attack on debt should be. You will want to maximize your extra cash flow in the right way.
Typically, if you have extra cash flow and can afford it, paying down balances on credit cards, student loans, auto loans, and other debt obligations is a good idea. Focus on paying down the debts with the highest interest rate first if you can.
Paying off debts and reducing credit card balances can also help improve your credit score, which may open up new loan options and earn you a lower mortgage interest rate. BUT, ask the expert first to make sure you are on the right path!
5. UNDERSTAND CREDIT SCORE REQUIREMENTS
Every loan program has its own minimum credit score requirements. Consult with your loan officer on your current score and how much you need to improve it to qualify for a particular loan program. The following are the typical minimum credit score requirements for popular loan programs: Conventional: 620, FHA: 580, VA: 580-620, USDA: 640
6. TAKE STEPS TO IMPROVE YOUR CREDIT
You can often qualify for a better loan or lower your interest rate by improving your credit score. Even small improvements can help your mortgage application. ASK YOUR LENDER FIRST.
Good Habits to Have:
Review your three free credit reports and work to amend any errors or inaccuracies you notice (karma.com)
Pay your bills on time every month, and in full if possible
Keep your collective outstanding balances to 30% or less on your total credit limit
Don’t close any old/existing credit accounts
Avoid applying for any new credit- whether that’s a credit card or auto loan. New payments will increase your debt load and decrease the amount of house you can qualify for. Not to mention, opening new lines of credit can hurt your FICO score.
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