by Teresa Larson, 20+ years year real estate experience
(801) 750-5446

If you are a first time buyer owning your own home is within your reach.  You just have to want it bad enough! You have been paying rent for months you surely would like to turn that rent payment toward your own benefits of ownership. What is holding you back? You might even be a person without any credit history.  If this is the case you need to establish one or two accounts keep the balances low and pay them on time each month.   If you have had trouble paying your bills make that a thing of the past. Start fresh and establish some new good credit. Home lenders want to see a decent credit history and stability. Work history is also taken into review when you are qualifying for a home loan.   Lenders like to see that you have been in the same line of work for at least one or two years depending on the type of loan you get.  If you have just graduated from college recently and are working in your field of study, that can count as part of the job timeline toward qualifying for your home loan.  If you are new to a job you need to be past any probationary period.  Start planning a budget that includes saving money for a down payment.

Down Payments

Buying a home will require some cash! In most cases you will need at least 3.5% of the sales price for a down payment, 7% would be a better figure to plan on, that would include closing costs.   As a buyer if you can come up with a 20% down payment you will be able to avoid mortgage insurance and also get a better interest rate.  As a first time buyer this will probably be tough. In Utah if you qualify for Utah Housing you can get into a home with no money out of pocket. One of the stipulations for Utah Housing is that you cannot have owned a home for at least 3 years.  There are guidelines for Utah Housing. It can be an extremely viable choice if you can qualify. You need a slightly higher credit score than the standard FHA loan. Sometimes there is grant money available to assist people with down payments and  or closing costs. You can also have your real estate agent write your real estate purchase contract asking the seller to pay some of your closing costs. The seller does not have to but might consider it. In today’s market sellers are usually at least aware that they might be asked to contribute to a buyer’s closing costs.  Sellers can say yes or no to that. In our Utah home market sellers are paying closing costs in many of the recent sold transactions.  If you don’t have cash for down payment but have to high of an income for Utah Housing  no down payment loan  maybe you have access to a 401 K that allows you to take out money for  purchasing a home.

Credit Scores and Home Buying

You have access to your credit score and you might already monitor it. Be aware that when you buy a home the lender will pull a credit report from three credit bureau’s to determine your eligibility. I mention this because sometimes a person may think they have a certain credit score when it will show up slightly different because of the average of the three credit scores.  Home loans are credit score based. You need to have a credit score of at least 600 or better to get a home loan in today’s market place. If you have had trouble and made credit card payments late or if you have judgments, tax liens, or bankruptcies you will need to do some work to get your credit scores within the range of 600-700 or better. With some diligence this can usually be done within a year, give or take. A good loan officer will be willing to sit down and talk with you about what you need to do to buy a home now or in the future, for free.

Important Credit Repair Ideas

If you have any judgments against your name these need to be paid. Remember to set up a file that has proof of all your payments. It is common to hear people say I paid that off already but the judgment was never cleared from their record. In these instances the burden of proof lies with you. Make it a point to be a good record keeper. If you find a mistake or have a dispute there is a process that you can go through to get that taken off of your credit report.  Pay your credit card and retail credit bills on time each month even one late payment can ruin your chances of getting a home loan. Typically on an FHA loan you can’t have had a late payment for six months. For a conventional loan the wait is one year.

If you owe a large amount of money in consumer debt and feel overwhelmed or are having trouble meeting your monthly obligations you might want to try an agency like AAA Fair Credit Counseling. There are a lot of credit repair places available but many of them charge large fees make big promises and do not accomplish much after they have taken $500 or more of your money that you could have put towards your bills.

Online Offers

In today’s online world it might be hard to get some straight answers concerning whether you can qualify for a home loan or not.  One thing I found is that when you go to online websites trying to get answers to guide you through your credit dilemmas you do not really get answers. You get a sprinkle of information and encouraged to apply online. There are websites that promote home loans for bad credit. Well, what is bad credit? All lenders who sell FHA, VA, and Conventional loan products are subject to the same guidelines because these are government insured or backed programs so when they advertise government home loans for bad credit they are a bit misleading. The truth is that you do not need as high of a credit score for an FHA loan as a conventional loan. A good lender will be willing to sit down with you and explain the differences between home loan types. There are several and they are as unique as you are as an individual. Different programs work for different people.

Shopping Interest Rates

If you are comparing interest rates you should know that most lenders will be competitive with each other. If you find a lender being able to talk to them on a regular basis is important.  Some companies can’t get you financed after they have collected a fee and promised you that your credit doesn’t matter. If lenders are asking you to pay more than the credit report fee up front beware!  After you get in with some online loan companies who offer lower rates or promises of no worries about credit  you might find they have terrible customer service and can’t get your loan processed for months or at all.  You have already given them a loan application fee of $500. Ouch!!!  Using a trusted and well known loan source is advisable.  Sellers get frustrated waiting for you to get your loan in order. A reputable company will help you avoid trauma in your loan process. I should also mention that a good real estate agent can help you work through all of these problems and should be willing to give you names of their preferred lenders.

Resources:
http://www.utahhousing.org/HTML/homebuyer.shtml
http://www.faircredit.org/
http://www.fha.com/fha_loan_requirements

©Teresa O Larson PC, 2014

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