1. Check your credit score and report. In today's environment, lenders are looking for steady income and FICO scores of at least 560 (for FHA loans) and 640 (for conventional loans). The higher your credit score, of course, the better the interest rate you would qualify for. Visit www.annualcreditreport.com and read over your credit report carefully and quickly take action on any errors you see so that your credit score has time to re-adjust once the mistake is found and corrected. You'd be surprised at how often buyers find an error on their credit report!
2. Get an underwritten pre-approved with a reputable lender. You'll hear the terms "pre-qualified letter" or "pre-approval letter" thrown around. There are in fact, three different ways lenders can demonstrate their ability to approve you for a mortgage loan. Plus, a pre-approval is not the same as a pre-qualification.
The first tier is a pre-qualification. A pre-qualification letter indicates that a lender believes they'll be able to qualify you for a loan. The next tier is a pre-approval letter, which is a conditional commitment from the lender to lend you the money and indicates that they've looked at some of your financials to determine your eligibility. The third and strongest tier is an underwritten pre-approval. In this instance, the lender and their underwriting team has done more pre-work to more fully flesh out your finances and helps convey the strength of your financial position to the seller. This is one way I help my buyers compete with all cash offers!
I work with several great lenders I can connect you with! Like me, a great lender is an important part of your team when buying a house and must be available to help, advise and problem solve. We're professionals in our field who can help you get into your dream home!
3. Pay off and pay down debts. Depending on your timeline, speak to your mortgage lender first to strategize on how best to find the balance between your debt and having a larger down payment, but paying down, or ideally, paying off debts will help your FICO score improve. It will also help as you apply for a mortgage loan because a lender will look to see that your debt (including proposed mortgage payment) to income ratio is 45% or lower.
4. Save for your down payment. Lenders look at your credit score and down payment amount to determine which interest rate you would qualify for. Usually, the higher your FICO and down payment, the lower your interest rate. Qualifying for the best interest rate will save you thousands in the long run over the life of your loan.
Not everyone will be able to put 20% down on a home. If you are fortunate enough to put down 20% or more, however, you'll be in the top percentile of buyers who will likely qualify for the lowest interest rate, won't have to pay private mortgage insurance or PMI, and your offer will also stand out to a seller. However, even if you don't have a 20% down payment saved up, it doesn't mean home ownership is out of reach. Most buyers don't put down 20% and I can help with being strategic with your offer so it remains competitive.
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