December 10th, 2018 9:41 AM by Jackie A. Graves, President
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potential home buyers wait to talk to a mortgage lender until they’re ready to buy. Makes sense,
right? Why bother digging up your financial statements and filling out a bunch
of paperwork if you’re not going to buy right away?
If buying a
home is one of your long-term goals, you may be doing yourself a disservice by
not talking to a lender sooner rather than later. The goal of any good mortgage
lender is to help you get “mortgage-ready.” This means getting you and your
finances in order so you can qualify for the best mortgage possible, with
financial terms and a monthly payment that make sense for you and your budget.
So even if
buying a home is a few years away, sitting down with a mortgage lender today
can help get you on the path to homeownership. Here are five reasons why you
should talk to a lender, even if you’re not quite ready to buy.
1. You may be closer to
buying a home than you think
reason home buyers may hesitate to meet with a lender is that they think they
aren’t financially ready. They may think their credit score is too low, or they
don’t have enough saved up for a down payment.
might be surprised, though.
day, I’m able to show a prospective home buyer a home financing option or
solution they didn’t know about,” says Gaurav Mahajan, vice
president of residential lending at Draper and Kramer Mortgage Corp. of
Chicago. “From a credit score, monthly payment, and down payment perspective,
many potential buyers are closer to owning a home than they realize.”
put off buying a home until they have a good credit score (typically
a score of 700 or higher). According to Mahajan, a credit score of 620 is
generally considered the minimum to qualify for a mortgage, but many lenders
work with applicants with lower credit scores. Federal Housing Administration
loans are available to applicants with scores as low as 580, and your lender
may be able to connect you with other options.
credit score is on the lower end, you may want to take some steps to improve
your credit so you can qualify for a better interest rate.
begin working with prospective home buyers one to two years in advance,” says Heather
McRae, senior loan officer at Chicago Financial Services, in
Chicago. “If there are [credit] items that need to be addressed—like how to
boost your credit score to obtain the best rate and terms, or the best way to
handle an account that has gone to collections—I guide people on how to best
tackle these items.”
Michael Press of Penrith Home Loans in Seattle agrees. “If a buyer’s
credit score needs improvement or perhaps they have an issue documenting
necessary income or assets needed to qualify, a seasoned mortgage lender can
help formulate a plan to get that same buyer in a better position to buy,” he
an action plan, lenders will typically:
a soft credit checkA soft credit check is a credit
inquiry that doesnt hurt your credit score. This gives your potential lender a
sense of where you stand today.
your financial statementsReviewing your bank statements
and any investment or retirement accounts you have helps your lender know your
available income and assets.
you about your budget, income, and financial historyDont
be shy or embarrassed when it comes to disclosing this information to your
lender, whose goal is to work with you. If you had a financial rough patch, got
behind on a bill, or co-signed on a loan for your brother-in-law that you
really regret, let your lender know.
potential lender knows the ins and outs of your financial situation, it can
develop a plan to help you pay down debts that are dragging down your credit
also clarify exactly how much you need to save for a down payment. FHA loans,
for example, require a down payment of at least 3.5%. You may want to make a
larger down payment to bring down your monthly payment or to offset negative
credit items. A larger down payment of 25% to 30% lowers the lender’s financial
risk, making your application more appealing.
A high down
payment isn’t a requirement to qualify for a mortgage, though. Depending on
your situation, you may qualify for a down payment assistance program. Many of
these programs are localized, so to find out what you qualify for in your city
and state, you should sit down with a lender in your area. For example, McRae
reviews the pros and cons of local down payment assistance programs with her
prospective home buyers to help them make an informed decision.
application process is lengthy, even for experienced home buyers. For
first-time buyers, sitting down with a lender can give them an understanding of
the mortgage underwriting process, how long it takes, and what documentation
they will need to have prepared.
interest rates rising and many housing markets shifting, education and
preparedness are more important than ever,” says Press.
with a lender can help demystify the lending process, giving you time to get
“mortgage ready” so you can purchase your dream home—whenever the opportunity
smart financial news and advice, head over to MarketWatch.
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