For those whom are looking to buy a home and do not know quite where to start, I am going to write a series of posts that I hope will help to get the process going and get you in the home of your dreams.
STEPS TO BUYING A HOME-
STEP 1 Check your credit.
YES, do it before going out to look at homes or before applying for a mortgage. Preferably, do this 6-12 months before looking to buy.
A quick check can be made at Credit Karma. It only lists TransUnion and Equifax, but that should be enough to give you an idea. Its free because while giving you your credit score, you will also be offered credit cards by the companies paying to allow that free score. (Dont obtain new credit while looking for/contracting on a home.)
Once a year you can go to
AnnualCreditReport.com and get a FREE full credit check with all three major credit reporting agencies scores.
Look for discrepancies on your report. You can dispute a discrepancy on your credit if there has been fraud or an error. You will have to contact Experian, Equifax, and Transunion. Contact the original creditor, too. If there has been identity theft, contact all of the above and report the theft to
IdentityTheft.gov to clear up the situation. The Consumer Financial Protection Bureau (CFPB) lists the following errors to watch for:
Wrong name, phone number or address
Accounts belonging to another person with the same or a similar name
Incorrect accounts due to identity theft
Incorrect reporting of account status
Closed accounts reported as open
Accounts incorrectly reported as late or delinquent
Incorrect date of last payment, date opened, or date of first delinquency
The same debt listed more than once
Data management errors
Reinsertion of incorrect info after it was corrected
Accounts appearing multiple times with different creditors listed
Accounts with an incorrect current balance or credit limit
It is not a quick fix to get identity theft or fraud straightened out, but well worth the time it takes to ensure you have the correct information in your credit file.
Some mortgage loan providers usually require somewhere between 580 and 620 as the lowest score to obtain a loan. However, it does not mean that you will receive a loan with a score in that range. You may pay more for the loan and mortgage insurance.
With a home in the 100-250K range, a minimum score of 690-719 would be more in line with the lenders requirements.
Mortgage loan providers will be looking at your payment history. You’ll have to meet other standards set by lenders, too.
Lenders will verify your income (bank statements and last 2-3 annual tax returns) and confirm your ability to afford to pay the mortgage. Existing debt can’t be too high. Your total debts (including the home loan) should be below 45% of your pre-tax income.
You must be employed for at least two consecutive years to qualify for a home loan. Yes, there are some exceptions. Your credit history has to be good, too. This means no late payments or negative data reported to the credit bureaus within the past 12 months.
According to Mortgage Reports - these lenders are listed as some with programs to allow a 600 or higher score:
*FHA home loan — These are government loans insured by the Federal Housing Administration (FHA). FHA loans are intended for people with lower credit; they allow a minimum credit score between 500 and 580. If your score is below 580, you’ll need a 10% down payment. If it’s above 580, you only need to put 3.5% down
*VA home loan — VA home loans don’t have a minimum credit score requirement, so it’s possible to get this type of loan with a 600 credit score. Lenders set their own minimums, which typically range between 580 and 660. Eligible veterans and servicemembers can get a VA loan with no money down
*Non-Qualified (Non-QM) mortgages — Non-QM loans are for people who don’t fit inside the conventional loan box, but are still reliable borrowers. Non-QM loans are typically offered by banks that have the funds to set up and service their own unique mortgage programs. You can look for one on your own, or work with a mortgage broker who can recommend loan products that you’re likely to qualify for
*Conventional home loan — A conventional mortgage loan might be an option, too, but only when your credit score is a little higher. To qualify for conventional financing, you’ll need a minimum credit score of 620. Generally, 20% down payment will be expected.
Scenario 1 - there are discrepancies, fraud, or identity theft on your credit report. Follow the suggestions above to clear this up. It will not be corrected overnight, but usually in a manner of weeks, it should be.
Best case scenario- there are no discrepancies, which allows you to look at the other areas of your credit report to see how to improve your score
Scenario 2- you have a low score because your credit cards are almost maxed out. If possible, start paying a little more on the cards each month. Pay more than the minimum. The score will slowly rise.
Best case scenario- owe no more than 30% of available credit.
Scenario 3- you pay your bills late. Each late payment reported is telling the lender that you may not pay them on time. The lender is looking at the last 12 months.
Best case scenario- even if you can pay just the minimum due, pay it in a timely manner.
Scenario 4- BEST CASE SCENARIO--- you looked at your credit report and found no discrepancies, fraud or identity theft. You owe less than 30% of available credit, and you pay your bills on time. Your credit score should not be a barrier to you applying to see if you can get pre-qualified for a loan and see how much you can spend on your new home.
Next time we will look into your debt-to-income ratio (DTI).
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