GETTING READY TO BUY YOUR HOME:
- GET COUNSELED:
Your home search counselors should be a Nonprofit Housing Counselor, the Realtor and mortgage lender you’ve chosen from at least three options, and your own internet research. Give weight to your final Realtor’s choice of lender, but know the choice is yours. Also, check your state, county, and local Housing Finance Agencies, Department of Housing and Community Development, and Department of Housing websites for local housing and special financing programs and eligibility.
Download National and State Downpayment and Closing Cost Assistance Guide mentioned in video.
2. KNOW AND RAISE YOUR CREDIT SCORE. MANAGE DEBT-TO-INCOME RATIOS:
You can view a free copy of your credit report with any or all of the three national credit reporting agencies your mortgage lender will use at AnnualCreditReport.com. This is the only Site mandated by law to disclose your free report once a year. Your actual credit score is not included, but knowing what is on your report is the first step in becoming credit-ready for homeownership.
Your Nonprofit Housing Counselor will also pull your credit report. If the score is not an Experian Fair Isaac Risk Model (FICO), Equifax Beacon, or Transunion Empirica score, it is not the score a mortgage lender will use in determining your credit risk and eligibility for mortgage approval. In addition to your Counselor’s recommendations, educate yourself on credit at MyFico.com, ConsumerFinance.gov, and the Federal Trade Commission’s (FTC) websites.
Fair Isaac and Company invented modern credit scoring, and the two federal agencies above are tasked with educating and protecting credit consumers. Debt and income, along with credit score, are the most important factors in determining whether you qualify for a mortgage and for how much. Make sure you know your monthly debt obligation. Generally, it’s the monthly debt that shows as revolving or fixed on your credit report with some exceptions. Consumerfinance.gov has a good explanation of DTI ratios, all your monthly debt payments divided by your gross monthly income, and MyFico.com has a How Much Can I Borrow? calculator.
3. GET PREAPPROVED:
Get Pre-approved by two to three lenders. If you are a member of a Credit Union, consider them as one of your choices. Any “required lender” based on the down payment and/or closing cost assistance program your Counselor recommended should be a second consideration. For example, if you are approved for the D.C. HPAP program, there are certain lenders approved for that program. You must use one of these lenders in order to obtain the funds. Your primary bank is a third option but do your research. Ask for recommendations.
Each lender is required by law to provide a Loan Estimate (LE) within three business days of mortgage loan application. It’s much easier to compare lender quotes by comparing the Loan Estimates. They were designed to make the mortgage finance offer more transparent and understandable. Compare all terms, particularly the Annual Percentage Rate (APR) which takes into account sometimes hidden fees.
Once you choose a lender and know what programs and possible downpayment and closing cost assistance you qualify for, you and your Realtor are ready to find your home. As a pre-approved buyer, you are second only to a cash with no appraisal required homebuyer in the eyes of a seller comparing potential buyer contracts.
