Marching into Home Ownership
Ms. Bea recently sat down with Don Lucas, the SVP Director of Mortgage at United Bank, to discuss home buying. Don described the first five main steps to buying a home. Together, we will be having a series to help you along your home buying journey.
Now, let us begin with the first step, which Don says, is “Credit." Every financial institution has its own credit guidelines. Set your target score to 740 or above. This score will typically get you the best mortgage rate at that institution, regardless of the institution. Having a credit score of 740 or above is considered an excellent score if the other credit factors are within guidelines. If you have collections, past due payments, and charge offs, now is the time to start repairing your credit by setting up payments plans and sitting down with your financial expert for guidance
Step two is the saving up towards your down payment. The goal to set, is to have at least 5% of your own money for a down payment. There are 100% down payment assistance programs and special programs for veterans, etc. However, these are great opportunities with limited selections.
Step three is to build up your reserves. Your reserves are the liquid (available) money that you have saved up for an emergency to ensure you can make your mortgage payments. The goal for the reserves is to have at least 6 months of payments that you can easily access.
Step four is your debt to income (DTI). Your DTI is your gross income divided by your expenditures, which are your credit card payments, even if you have a zero balance; your installment payments, and any open lines of credit, even if you have a zero balance; excluding any utility payments.
Step five is your assessing your pre-qualifications. This is your budget; how much you can afford for mortgage. Pre-approval is different from pre-qualifying. Pre-qualifying is only one step. Pre-approval has many steps including having a lender collect certain documents, a loan processor working as a liaison between you and the lender to collect information for the underwriter, who ultimately approves your loan application.
Some final tips from Don, for your first five steps towards home buying, is to remember that after we, the lender, pull your credit, we go by what we see... at that time. Mortgage lenders pull from all three credit bureaus and use the middle score. For example, if your scores from each bureau are 800, 780, and 750; the score we would use is 780. Other things that we look for are stability, such as 2 years of employment history and 2 years at your present address.
We are looking forward to continuing this series, to help you on your journey to home ownership. For questions, email bea@bankwithbea.com #bankwithbea