By Ray Peña, Texas Loan Officer
Today’s borrowers are headed for “a new day-in-time” when it comes to mortgage lending. Gone are the days of lax credit requirements/guidelines and the zero money out of pocket loans. From first-time homebuyers to real estate investors, they all have to come to the table with 3-20% down to close a deal these days. Preparation is the key factor. Whether you have excellent credit or need help with past credit issues, just knowing where you stand today can save you thousands tomorrow. In the articles to come, we will focus on how to qualify buyers for their purchase – starting with pre-qualification and going all the way through to closing.
Keep in mind that each borrower is different, just as every loan is different. However, the process for qualifying for a loan is relatively the same. Some may take longer than others to qualify, but the truly dedicated ones will achieve their goal of home ownership, if they make the sacrifice to do so.
Our first conversation will cover pre-qualification and credit scores. With good or bad credit, a potential homebuyer can successfully plan for their home purchase. Homebuyers should consult with their mortgage professional prior to looking for a home and talking to sellers. Once you know you qualify for a home loan, you know how much you can afford and then you can make better offers to sellers.
Pre-Qualification
Mortgage professionals want to know about your financial situation. This involves asking questions about your income, assets, liabilities, credit score, goal, i.e. purchase or refinance, and real estate owned, if any. To assess your situation even better, your loan officer will ask you to fill out a pre-qualification form to request your credit report from the three main credit repositories, Experian, Equifax, and TransUnion. This will start the pre-qualification process. After your initial consultation with your loan officer the information will help determine how serious you are about purchasing a home and guide the transaction as needed.
Credit
Your FICO score, A.K.A. credit rating, is one of the most important factors in lending; it determines whether you qualify for a loan, loan product/program, loan-to-value (LTV), and ultimately your interest rate. Do you know where your current credit score falls on the credit spectrum? This can mean the difference between thousands of dollars over the life of your loan. This is why it is important to be aware of you score and what affects your score, before you make one of the biggest investments of your life.
Insight: Property type, LTV, documentation type, occupancy, loan program and credit all determine interest rates.
It is safe to say that any homebuyer with good credit and some assets would qualify for a home loan. For those with “not so good credit” do not despair. It may mean you cannot buy a house today or next month, but it does not mean you cannot ever buy a house. With a little planning and direction, you can be well on your way to home ownership sooner than you think. Below are a few factors that affect your credit score, this information is provided by Credit Information Service Company (CISCO):
Insight: Lenders base their decisions on RISK. A higher risk borrower will pay more for a loan than a lower risk borrower will over time.
If your credit is an issue, your mortgage professional will have a referral partner that can assist you with your credit score goals. Improving your credit involves strategy, so be sure to consult with a reputable company when it comes to credit restoration. Removing negative items is not always the best way to achieve credit objectives. A credit coach who understands the credit scoring system can truly maximize your credit score potential. There are costs associated with these credit repair and coaching programs, however you must look at it as an investment into your financial future. The better your credit is, the less you will pay, in terms of interest, over your financial life.
Be sure to come back next week when we will talk more about loan programs and down payment assistance.
Ray Peña is a mortgage consultant for Nation’s Bankers Mortgage in Houston, TX. Ray is a native Houstonian whose office is located in the Houston Heights. Feel free to contact Ray at raympena@gmail.com