The first step in the home buying process is to speak with a lender to see what you are pre-qualified for or put a plan together of what needs to be done in order to qualify. I understand this step to be a very scary one for a lot of people. The truth is, there is power in knowing where you stand. You don’t want to be stuck in your current situation because you are scared of the unknown. So I wanted to give everyone an idea of how that initial conversation sounds and what lenders will look for.
You will start with basic information, name, contact info, address, employment status ( like to see the same field for 2 years), and income. Then you will be asked some prescreening questions before they pull your credit. The prescreening questions will be:
Do you have any late payments in the last 12 months?
Bankruptcy/foreclosure in the last 3 years
Any Judgements or collections? Medical collections aren’t a big deal. Anything in these categories over $2,000.00 would need paid before closing.
Then they will run your credit – and they aren’t just looking at the credit score but looking at your credit profile. As far as score goes around a 620 is what the minimum typically is on average. They will look at your debt to income ratio, which means anything that’s a recurring payment showing on your credit report is considered a debt, as well as the new house payment. There are different parameters for different loan types.
Conventional allows around a 35% DTI ratio, meaning your debts can amount to 35% of your monthly income. For VA and FHA its about 50% and for USDA its around 40%. There are low and no money down programs so if you are worried about saving up money for a large down payment, you may not have to wait. There are many sites out there that provide you with a free credit score, just be weary because they can vary up to 100 points.
We have a few lenders that we work with and have the level of customer service that we expect for our clients. Tim Draves with McLean Mortgage and Michael Pritts with M Lend. Both are local and have been truly amazing to work with!
The benefit to doing this step first is when your agent starts to search for properties that meet your criteria, we will also look in the proper price range. This way you don’t go out looking at houses and find one that you set your heart on to not get the approval you need for it. Also, if we have the pre-approval and we find the home you love, it will allow us to put in an offer quickly since all listing agents require a copy of the pre approval to be submitted with the offer.
Now, if the credit parameters sound like something you may not meet, or you have checked with a lender and don’t meet them yet. We do have a rent to own program that has a little more flexible standards. The rent to own requires credit to be a 550 and an income of at least $50,000 a year. The program allows you to choose your home, based off the monthly amount you are approved for and they purchase it for you. You then rent the home, and have the option to purchase within the first 2 years for the same price they purchased it for.
I hope this information clears up a lot of unknowns for people thinking about buying but scared about the process. Our team is here to walk you through every step of the way!
By Dayna Metz