It makes sense to most people that they would wait to talk to a mortgage lender until they are ready to buy a home. Why bother rummaging through all your financial statements and filling out all the paperwork if you’re not “in the market” for a new home right now?
Here’s the thing though, if buying a home is one of your long-term goals, you may be hurting yourself by NOT talking to a lender right now. The goal of any good mortgage lender is to help you get “mortgage-ready”. What does this mean? It means getting your finances in a place so you can qualify for the best possible mortgage with interest rate and payment schedule that fits your budget.
Truly, if buying a home still feels like a few years away type activity, sitting down with a mortgage lender today can get you started on the right path to home ownership. Here are five reasons why you should talk to a lender, even if you’re not “in the market” right now.
1. You’d Be Surprised How Close You Are To Being Ready
One reason home-buyers are hesitant to chat with a lender is that they don’t think they’re financially ready. You might think your credit score is too low or you don’t have enough money set aside for a down payment. You won’t know until you ask and many a REALTOR® out there has heard stories of their clients coming away from a lender conversation with optimism in their hearts!
2. You Don’t Need Perfect Credit To Buy A Home
There are many people who put off buying a home until they have a “Good” credit score (typically a score of 700 or higher). According to Kristin Stark, Loan Officer with Movement Mortgage, a credit score of 620 is generally considered the minimum to make the mortgage process easy. “There is very little extra work that has to be done when someone comes to me with a 620 credit score. There are loans available for folks who have credit scores as low as 580 but know that there will need to be quite a bit of supporting documentation to fund those loans.”
3. A Lender Can Help You Create An “Action Plan” For Improving Your Credit
If your credit score is on the lower end, you may want to take some steps to improve your score so you can get that better interest rate.
“Usually the first thing to work on is paying down credit cards,” says Stark. “We do a credit simulator and play with improving the credit score by seeing what would happen if you pay down certain cards or move money around.” Basically the lender will go over options to get where you need to be. It really is a case by case basis but most lenders can find a solution within the next 6 months to a year.
To formulate an action plan, lenders will typically:
- Review your financial statements: These statements consist of bank statements, retirement accounts or any other type of investment account that lets the lender know about your available income and assets.
- Do a soft credit check: This soft check doesn’t hurt your credit score and gives your lender a sense of where you currently stand.
- Ask you many questions about your financial history, income and budget: Be prepared to share personal information about your finances. Your lender is here to help you and the more transparent you can be about your money, the better. Lenders have heard it all so don’t be embarrassed by that car bill you’re behind on!
4. A Lender Can Specify What You Need For A Down Payment
There are a wide range of loans out there, all requiring different percentages of down payment. FHA loans, for example, require a payment of at least 3.5%. You can always make a larger down payment to keep your monthly payment lower or offset negative items on your credit. Another good thing about having a larger down payment is that it lowers the lender’s financial risk, making your application more appealing.
There are some programs out there that you may qualify for down payment assistance. Many of these programs are localized so ask your lender what you qualify for based on your location or the location of the house you’re trying to buy.
5. Talk To A Lender So You Know What To Expect
The application process for getting a mortgage can be quite long, even for experienced home buyers. For those first-time home buyers, sitting down with a lender ahead of house hunting time can keep the big picture a little more chewable. There is so much more to learn about the process that’s not even associated with the lending side!
“With interest rates going up and the housing market shifting, making an educated decision is the right move to make”, says Stark. “A good lender can help demystify the lending process and give you more time to get “mortgage ready” so you can get into that dream home when you find it. Getting pre-qualified to see how much of a home you can afford is invaluable information to have when working with your REALTOR®. Why look at homes you can’t afford? Be informed!”
Talk with your REALTOR® about who would be a good lender to sit down and chat with!