This regularly-scheduled sponsored Q&A column is written by Val Sotillo, Northern Virginia-based Realtor and Falls Church resident. Please submit your questions to her via email for response in future columns. Enjoy!
Question: I am saving to buy a house in 2019. How can I be best prepared to qualify for a mortgage loan?
Answer: If home buying is on your to-do list in 2019, you need to be pre-approved for a loan before you can start viewing houses. A home is likely the biggest investment you’ll make in your lifetime, so you need to get a handle of your finances and take some steps to make sure you are in the best state financially to make the purchase.
The biggest and hardest part of the home buying process is saving for a down payment and other expenses such as closing costs, inspections, insurance and any immediate repairs you are responsible for. A common misconception keeping people from pursuing their dream of homeownership is the myth that you need to put down the traditional 20%.
Options may vary starting at just 3% depending on what type of loan you are planning to use. Additionally, closing costs can run anywhere between 2.5-5% of the total cost of the home.
Also, your credit score plays an important role in qualifying for a mortgage. Change your spending habits and boost your score.
If you check your credit report early, you’ll have ample time to correct any issues. You don’t want to have to address a bunch of mistakes on your credit report while actively looking for a home and trying to get approved for a mortgage loan. You can dispute an error by contacting the credit bureau directly
LET’S ASK A LENDER
For better guidance, I asked Chuck MacAnanny with Embrace Home Loans to give buyers some tips to be prepared and help secure the best mortgage options. Here’s his advice:
1. Avoid opening new accounts and making major purchases. Opening new credit cards, buying a car or increasing credit card balances can have a significant impact on your credit score and affect your qualifying debt ratios. So hold off on that new car and keep your debts as low as possible.
2. Know your credit score. The credit score mortgage companies use to make a credit decision determines which loan programs and what interest rate you will qualify for. Understanding what your score is and how you can possibly improve your score can help to save you a significant amount of money.
Avoid using free credit score services offered from credit card companies and other vendors like Credit Karma. These will not be the same scores that a mortgage company will use as they are derived using a different risk module.
Also good to know is the difference between a “soft” and “hard” credit pull. A few mortgage lenders now have technology that can do a “soft” pull with no impact on your score by using just the last 4 of your social security number. This is a great benefit in the early house hunting stages, so ask your lender if this is something they offer. A “hard” pull can negatively affect your score, so you will want to avoid giving your full social security number out to limit the amount of hard credit pulls you have done to protect your credit score.
3. Gather necessary financial documents. Add strength to your pre-approval by making sure you are prepared to provide your financial documents if requested. Sellers and their agents often ask if income and asset documents were verified as part of the pre-approval process.
Having your tax returns, bank statements, most recent pay stubs and other pertinent income and assent documents readily available to share is helpful.
4. Select a lender and understand your options. Mortgages are not a one size fits all. Select a lender who offers a variety of loan programs and a loan officer who will work hard to help you understand all of your options and to find the best fit for your financial scenario.
5. Get pre-approved. Once you find the right lender, make sure you are pre-approved for your loan. A pre-approval tells you the price range you can afford and will help in working out a negotiation strategy with your agent. A seller is not likely to take your offer seriously if you don’t have a pre-approval, especially if compared to another buyer who does.
6. Keep an eye on interest rates. Interest rates have been on the rise over the past year and projected to continue on that path in 2019. Find a lender that will let you lock in a rate prior to finding a property and that offers a rate lock with a “float down.” This allows you to protect yourself against rising rates while shopping around for a home, but also take advantage of lower rates with a float down if rates happen to fall.
Thanks Chuck! If you have any questions about home loans, or you would like to get approved for a mortgage, feel free to reach out to Chuck at [email protected]braceHomeLoans.com or call 301-875-6018.
What are your New Year’s Real Estate resolutions? Is 2019 the year you pay down your home loan? Put on a new roof? Sell your home? Buy a home? Whatever they are, I hope your 2019 Real Estate resolutions lead to great things for you and your family.
If you would like to discuss your Real Estate plans for 2019, or you’d like a question answered in my weekly column, please send an email to [email protected]. I hope to hear from you soon!
Val Sotillo is a licensed Realtor in Virginia, Washington D.C., and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, 703-390-9460.