Credit score is key. To get the best mortgage rates, you'll need a fairly high credit score, a FICO 740 or above. But even if you don't have the best of credit scores, you still have options. "A higher credit score can reduce the interest rate of a loan, but a lower score doesn't preclude you access to credit," Lantz says.
[See 9 Smart Ways to Come Up With Down-Payment Cash.]
The FHA still offers an avenue for would-be home buyers with less-than-perfect credit, according to Lantz and other experts. Those who qualify for FHA loans have as little as a 3.5 percent down-payment requirement as opposed to upwards of 20 percent with conforming and nontraditional loans. But a break on the down payment doesn't come free; in addition to annual fees to participate in the program, FHA also has more stringent property quality requirements, a major consideration in a housing market bloated with foreclosed properties.
"We always see buyers run after what they think is a great deal, but they forget that the lender has standards they need to meet for that collateral," Smith says. "Buyers need to be prepared that if they're out buying a distressed property, which are a lot of the sales right now, and there are problems with the property, they may need to come in with a larger down payment."
It might seem like a no-brainer, but borrowers should know their credit score and make sure their credit report is accurate. Along with employment history and income documentation, credit reports are being scrutinized more than ever. Challenged or disputed accounts can throw a wrench into the qualification process. "If you have any disputed accounts, right, wrong, or indifferent, it's going to affect your ability to get financing," Smith says. "Even the smallest detail can derail something."
[See The Ultimate Spring Home Buyers' Guide.]
Be prepared to act. In today's market climate, things change fast. Mortgage rates can fluctuate by the day or even by the hour, says Lantz, which means when rates dip, consumers need to be ready to lock the rate in. "Most folks think mortgage rates are set once a day at 9 a.m., when in fact, they change throughout the day just like the stock market," Lantz says. Even a small dip in rates can have a meaningful impact over the life of the loan, she stresses. Whether you're looking to refinance or qualify for a new loan, preparation and education is essential. That means being ready with your financing, which in turn can help your credibility as a potential buyer.
"I would encourage consumers to start saving now," Lantz says. "It's not going to help the consumer that's interested in buying tomorrow, but the housing market is in a place where we can expect affordability for a while to come. It's a great time for prospective home buyers to start getting educated now about what type of mortgage they would like, what type of mortgage they qualify for, and what other obstacles they may need to overcome."
Twitter: @mmhandley
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JD of NY 9:23AM August 30, 2011
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tod of FL 4:55AM August 30, 2011