So how do you ensure you not only land the home of your dreams, but get the best possible price from the seller and the best possible mortgage deal from your lender? By becoming the buyer every homeowner wants to sell to a financially stable, credit-worthy, pre-approved purchaser.
“Just as lenders consider many factors beyond your credit score, when deciding whether to finance your home loan, sellers consider more than just the offering price when evaluating potential buyers,” says Barrett Burns, president and CEO of credit score model developer VantageScore Solutions. “Buyers who can move quickly and decisively, who walk through the door with their financing lined up and their credit in good shape, are best positioned to stand above the competition this year.”
Steps toward being a better buyer
You can be a better buyer – one that will appear attractive to both lenders and sellers – with some simple steps.
First, understand your credit score and the role it plays in the home buying process. While a good credit score can ease the borrowing process for home buyers, it’s not the only factor lenders will use to gauge whether to approve you for a loan, Burns says.
“A credit score predicts the likelihood of whether a borrower might default in the first 24 months of a loan,” he notes. “But lenders will also consider how much of a down payment you bring to the table as a percentage of the purchase price, your income and your debt-to-income ratio when considering a mortgage application.”
Remember that lenders will pull your score from all three major credit bureaus, so it pays to check your credit report and score with all three. Reviewing your report and score allows you to catch and correct errors, and have a better idea of how potential lenders might view your credit worthiness, and rest assured that obtaining this information does not impact your credit score.
Understanding your credit score is a more complex process than you might expect. You can test your mortgage intelligence about credit scores at www.CreditScoreQuiz.org, a website created by VantageScore Solutions and its partner, Consumer Federation of America.
When you have a handle on your credit, consider other factors that can make you a better buyer, including how much you have to put down on a house.
The days of no-money down mortgages are virtually over, industry experts say. Today, even FHA borrowers will likely need to make a down payment. How much you need will depend on many factors, including the loan program you apply for and the price of the house you’re buying. Generally, it’s a good rule of thumb to save 20 percent of the purchase cost for a down payment.
Another thing to keep in mind when buying internationally is that rates will vary greatly from country to country. A Canadian buying a home in Playa del Carmen will find that mortgage rates Vancouver will differ greatly from mortgage rates in Mexico – possibly 10% or more! Many people buying a second home in Mexico will simply take out a home equity line of credit on their home in Canada or the United States, rather than paying the extremely high rates on loans south of the border.
Keep in mind, the more you put down, the more instant equity you’ll have, the lower your monthly payment, and the better your chances of not needing private mortgage insurance (PMI), which can add hundreds of dollars to your monthly payment. If you’re able to put down more than a lender requires, a mortgage company may be willing to give you a pass on other issues on your application, such as a less-than-stellar credit score.
“Lenders and sellers are all looking for buyers who are ‘the complete package,'” Burns says. “While you should take care of your credit score, you shouldn’t obsess over it. Instead, look at it as an important part of the overall package of assets that can make you the kind of buyer everyone wants to work with.”