You can simplify your home buying experience with a little planning
While interest rates have recently lowered, credit standards have tightened. So-called "no-doc" loans (for "no documentation required") have all but disappeared and 100 percent loans are harder to obtain. But with good credit, mortgages continue to be written and at better rates than were available last year.
"Mortgage lending is getting back to the basics of old fashioned qualification," says Ron Watterson, vice president and branch manager for CTX Mortgage. "Many of the ‘low doc’ options have gone away, and lenders have raised the bar on borrower requirements for credit profile, down payment and debt to income comparisons."
When working with a potential new buyer, "The first thing we do is send them to a lender to be pre-approved," says Jeff Updike of ReMax Urban.
He offers some simple advice to borrowers in today’s market: Make sure you have good job stability, are buying in the right price range and not over-borrowing.
"Have some cushion," he counsels, reminding homebuyers that it’s not a good idea to spend your last dime getting into the house. And make sure your credit is in order. Finally, he tells gay and lesbian couples to have their legal issues addressed before going to closing.
Watterson agrees with Updike that buyers should have a cushion. "It’s always best to have reserves after closing equal to two to three months of house payments in the bank for unexpected events."
He says lenders are looking for three things: credit, income and assets.
"Credit is king," Watterson says. "In a nutshell, the most attractive financing terms are offered to the borrowers with the best credit score and profile, although there are still great products available to borrowers with lower scores, or even no credit score at all. Remember, knowledge is power."
While lenders are looking for higher credit scores than before, they’re also more stringent about property condition and like the borrower to have more money in the bank.
Diane Sherman of David Griffin Realtors says that in addition to finding out your credit score, see if anything needs to be corrected. It’s not uncommon to have old collections show up in a credit file, and an unpaid debt of a few hundred dollars dating back 10 years could prevent the borrower from getting a better rate.
"You can fine-tune your financial profile," Sherman says. "I’d work with a good, strong loan officer to tidy up some of those things."
"Many people are surprised to discover errors on their credit report which may have dropped their scores dramatically," Watterson says. "Most of the time this can be corrected, but it takes time. Start early!"
Watterson says he looks at a two-year history of employment. In addition, he says lenders want to know that your continued employment for another three years after the closing is likely.
Even in the current environment, there’s still hope for borrowers with fewer assets. Watterson says that the current real estate market offers homebuyers a terrific opportunity with historically low interest rates and a large inventory of homes for sale.
"One hundred percent financing is still available so saving for a large down payment is not as important now as for previous generations," he says.
For buyers with good credit but without the cash for the down payment, Watterson advises, "down payment assistance programs are also available to help buyers with down payment and closing costs. Another popular option to consider is bond programs, which are specifically designed for first time homebuyers, teachers, policemen, firefighters and those purchasing homes is targeted areas. These programs typically offer some incentives such as down payment assistance, and some even offer loans with interest rates below market for eligible borrowers."
Still confused or unsure what sort of loan you might qualify for? Realtor Lory Masters has some simple advice.
"Find a Realtor that knows what they’re doing and knows and understands gay and lesbian issues in real estate. Find someone with knowledge and experience."
"In a nutshell, the most attractive financing terms are offered to the borrowers with the best credit score and profile, although there are still great products available to borrowers with lower scores, or even no credit score at all. Remember, knowledge is power."
This article appeared in the Dallas Voice Defining Homes print edition March 7, 2008