This ARTICLE On Preparing For A Mortgage For First-Time Homebuyers Was PUBLISHED On September 4th, 2019
Once you have made the decision to purchase a home, the next step is to get pre-approved.
- Preparing For A Mortgage is key for homebuyers
- The first step in Preparing For A Mortgage For First-Time Homebuyers is to educate yourself on the various loan programs
- FHA and Conventional Loans are the top two most popular loan programs
- Preparing For A Mortgage will reduce stress during the mortgage process and can save you money by getting a lower mortgage rate
- Two of the most important factors on Preparing For A Mortgage For First-Time Homebuyers is to maximize credit and make sure your debt to income ratios are in line with agency guidelines
In this article, we will cover and discuss Preparing For A Mortgage For First-Time Homebuyers.
Preparing For A Mortgage By Maximizing Credit Scores
The minimum credit score to qualify for a 3.5% down payment FHA Loan is 580 FICO. HUD, the parent of FHA, allow borrowers with under 580 credit scores down to 500 FICO to qualify for FHA Loans. However, any borrowers with under 580 credit scores need 10% versus 3.5% down payment.
How Lenders Use Credit Scores
Credit Scores are used for two purposes:
- Meet the minimum credit score requirements
- Pricing on mortgage rates
The lower the credit scores, the higher the mortgage rates. Lenders consider lower credit score borrowers as high risk. With high risk comes higher rewards. Lenders reward themselves with higher rates on borrowers with lower credit scores.
Alex Carlucci, a Senior Vice President at Gustan Cho Associates and a credit expert said the following:
FICO credit scores are among the most frequently used credit scores, and range from 350-800 (the higher, the better). A consumer with a credit score of 750 or higher is considered to have excellent credit, while a consumer with a credit score below 600 is considered to have poor credit. To qualify for a mortgage and get a low mortgage rate, your credit score matters. Each credit bureau collects information on your credit history and develops a credit score that lenders use to assess your riskiness as a borrower. If you find an error, you should report it to the credit bureau immediately so that it can be corrected.
Ability To Repay And How Much Can I Afford
One of the most important factors to consider when preparing for a mortgage is how much house can you afford versus qualify. Lenders do not take monthly debts that do not report on the credit bureaus into account when underwriting borrowers.
The following factors are not calculated by mortgage underwriters:
- Child and elderly care expenses
- Utilities such as electric, gas, water, scavenger
- Personal expenses such as cell phone, cable, internet
- Cigarettes and alcohol expenses
- Fuel and Travel
- Auto expenses and insurance
- Health and other insurance expenses with the exception of homeowners insurance
- Dining and groceries
- Pet expenses
- Clothing and dry cleaning expenses
- Maintenance and Repairs
- Landscaping and Snowplowing
- Tollway expenses
Each family has its own type of lifestyle. Therefore, everyone has its own budget for their personal expenses.
Avoid Buying Too Much House And Consider How Much You Can Afford
How much you qualify by a lender does not necessarily mean how much you can afford.
- Go over your monthly expenses along with your new proposed housing expenses
- See if you are able to afford the new housing payment
- Remember to set aside for reserves
- A broken HVAC system can cost hundreds of dollars if not thousands
- Once you the amount of mortgage you qualify for, do your own underwriting and see if you are able to afford the new housing payment along with other monthly bills
You do not want to live paycheck to paycheck with no life and a huge mortgage payment.
Michael Gracz, the National Sales Manager at Gustan Cho Associates offers the following advice:
Simply put, lenders want to lend to financially responsible borrowers. Your payment history is one of the largest components of your credit score. To ensure on-time payments, set up autopay for all your accounts so the funds are directly debited each month. FICO scores are weighted more heavily by recent payments so your future matters more than your past. In particular, make sure to. Pay off the balance if you have a delinquent payment. Don’t skip any payments. Make all payments on time.
Preparing For A Mortgage With The Right Lender
Everyone has a different credit and income profile.
- Not all lenders have the same mortgage guidelines on FHA, VA, USDA, Conventional Loans
- Not all lenders offer non-QM Loans and alternative financing
- Not all lenders can do manual underwriting on VA and/or FHA Loans
- Not all lenders can do Jumbo Loans with 10% Down Payment and No PMI
- Not all lenders have the same credit score requirements on government and/or conforming loans
- Most lenders have overlays
- Lender overlays are additional lending requirements above and beyond agency guidelines
- For example, to qualify for a 3.5% down payment FHA Loans, FHA requires 580 FICO
- However, most lenders require a 620 to 640 credit score even though HUD requires a 580 FICO
- This is a lender overlay by the particular lender
Gustan Cho Associates is one of the very few national lenders with no lender overlays on government and conventional loans. We are also experts in Non-QM and Alternative Financing Mortgage Programs.
Over 75% of our borrowers are folks who could not qualify at other lenders and come to us. We do not close our loans for our borrowers but close them on time.
Tips And Advice In Preparing For A Mortgage
Massimo Ressa, the Chief Executive Officer at Gustan Cho Associates at Loan Cabin Inc. offers the following advice in preparing for a mortgage to first-time homebuyers:
Get pre-approved with a lender first. Then, you’ll know how much home you can afford. To get pre-approved, lenders will look at your income, assets, credit profile and employment, among other documents. Keep credit utilization low. Lenders also evaluate your credit card utilization, or your monthly credit card spending as a percentage of your credit limit. Ideally, your credit utilization should be less than 30%. If you can keep it less than 10%, even better.
Should I Repair My Credit Before Consulting With A Loan Officer?
You should first consult a loan officer before working on your credit. Most experienced loan officers will advise the following:
- Pay all your monthly bills on time
- Do not hire a credit repair company; Credit Disputes are not allowed during the mortgage process
- Do not purchase a new car and/or trade-in your car for a higher valued car
- Pay down your credit card balances
- Do not apply for new credit
- Do not bounce any checks
- Do not make irregular deposits and/or withdrawals
- Pay all of your monthly rental payments with a check
- Do not co-sign for anyone no matter how much you love them
- Do not pay any collections and/or charged-off accounts
- Do not quit your job
For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at email@example.com.