Home Buying is a big milestone for anyone. It can be exciting, and at times may feel long and tedious. As soon as you decide you are ready to start the hunt for your future home, keep these Pre-Home Buying tips in mind as you go along this journey.
Credit Score Matters
Your credit score is a 3 digit number that can have a huge impact on many things that you hope to accomplish in your life. One of the biggest reasons that you need a good credit score is for buying a home. As many people rely on credit cards to fund their expenses, they consequently end up in debt. This doesn’t have a favorable impact on credit scores. Yet, it’s so important to maintain good credit.
- Why The Score Is Important- A credit score is one of the most crucial factors in determining if you can qualify for a mortgage. It is an overall gauge for lenders to understand how financially responsible you are. The higher your credit score, the less risk you carry in the eyes of lenders.
- What Affects A Credit Score?- Your credit score is calculated based on information that is found on your credit report. There are five different things that affect your credit score, each with a slightly different impact:
- Payment history
- Debt-to-credit utilization
- Length of credit history
- Credit mix
- New credit
- What’s A Good Score?- Absolutely flawless credit is 850. Don’t worry if you’re not in that category. Only about 1/2 of one percent of consumers actually have a score this high. Once your score reaches 740 and above, you’re able to qualify for the best in mortgage rates. Even if your score is in the low 700’s, you still should be able to qualify for a good interest rate. For a conventional loan, many lenders look for a credit score of 620 and above. Being in the high 600s will help you to avoid the need for additional paperwork. You’ll also get a decent interest rate with this score.
- What If You Don’t Have Credit History?- Ideally, you would have opened some type of a credit card by the time you reached the age of 20. This would help to establish credit. If you don’t have any type of credit history, there are still a few ways that you can qualify for a mortgage. In these cases, lenders will often use alternative sources in order to determine the reliability of a party they’re lending to. For example, your car payment history doesn’t show up on your credit report, but a good track record helps lenders to see that you’re dependable and a responsible credit user.
- What About Bad Credit?- From missed payments to errors on your credit report, there could always be some problems with a credit score. The good news is that bad credit can be fixed. There are even loan programs designed to help people with less than perfect credit scores. Generally, FHA (Federal Housing Administration) loans and VA loans allow for low down payments and have lenient credit score requirement.
- Fixing Your Credit Score Is Fixing Your Habits- In order to repair your credit score, you’re going to need to fix the bad financial habits that got you into the situation in the first place. This means making on-time payments, spending less, and avoiding opening up any new accounts. Pay down your existing debt and try to make a fresh start from there. Also, be sure that you obtain a free copy of your credit report each year to keep on top of any errors that might be present on the report.
Choosing a Lender
One of the most frequent questions we receive is, "What lender should I use?" Having been in the real estate industry for over nearly 20 years, we've worked with many excellent lenders, and plenty of not-so-great ones, as well. Following are the most important qualities when selecting your lender.
- Does your lender have great communication? - Real estate transactions have many moving parts, and it is imperative that each clearly communicate with others. You'll want a lender who reviews the entire loan process with you, and who will alert you to any potential issues that might arise. Meeting face-to-face, and having the ability to have someone local who knows the market and can explain each loan product and the various loan scenarios is a necessity.
- Is the lender local? Many times, local lenders will be more available by phone or in-person than lenders from larger national chains. We recommend using a lender who provides his or her cell phone so that you may reach him easily, and who is available to meet with you in person (in NH) to discuss the best loan type for your situation.
- Is there more than one contact throughout the lending process? Most lenders have the loan originator/loan officer to take the application and explain the programs, along with a processor who works on the file through closing. Often, with larger companies, there are two, three, or even four people who will be working on the file.
- Is the loan sold after funding? Personally, I don’t think this is a big issue, but some people do ask about it. Every lending institution uses the same set of basic approval guidelines set forth by the government (Freddie Mac or Fannie Mae for conventional loans, HUD for FHA & rural development loans, and the VA for VA loans). If a lending institution sells directly to these institutions, then borrowers need only meet the basic approval guidelines. If the loans are sold or serviced through another institution, then there may be additional approval requirements the buyer must meet.
If you'd like our list of preferred lenders, please contact us today.
Long Term Planning?
What are your long term plans? If this will be a forever home, consider getting to know each Region in New Hampshire, each offers a slightly different flavor. There are many ways to visit, including some of the major events that the Free State Project hosts (Liberty Forum, and PorcFest), as well as meet ups all year long.
If you are thinking about purchasing an investment property, for example, a multi unit, take a look at Brittany's mover story. If you don’t already own another home, you can buy a multi-family property for as little as 3.5% down for up to 4 units as long as you plan to live in the building. And the lender can use 75% of the rental income to add to the buyer’s income for debt-to-income ratio purposes, resulting in more buying power overall. Brittany and her family have taken advantage of this program, and you can too!
Ready to Make Your Move? Let us know! We can't wait to welcome you home!