Whether you want to buy now, while the pandemic rages on, or wait until the all-clear is finally sounded by medical professionals, it’s smart to line up your financing as soon as possible. Or at least, do all the spadework necessary to find the best rates with the best lender.
Before you start your search, though, take a hard look at your credit record. That’s what your all-important credit score is based on.
A score is a point-in-time snapshot of how you use credit, and lenders consider it the Holy Grail. The higher your score, the lower the interest rate you’ll be offered. Conversely, the lower the score, the higher the rate -- if you’re approved at all. And most lenders, though certainly not all, are currently taking only those applicants with the highest scores.
Many credit reports are riddled with errors -- 1 in 5, the Federal Trade Commission found. Your file may contain the wrong name or address, for example, or list accounts that belong to someone with a similar name. Closed accounts could still be reported as open, accounts may be inaccurately labeled as delinquent, or an incorrect credit limit could be listed.
You can obtain a credit report for free every 12 months from each of the three national credit repositories -- Experian, TransUnion and Equifax -- at annualcreditreport.com or by calling 877-322-8228. If you find something wrong, address it immediately; mistakes can take several months to get corrected. For more on requesting corrections, go to consumer.ftc.gov/articles/0151-disputing-errors-credit-reports.
If your score could use a boost, take a look at online programs that can help. Experian has a program that allows you to add utility and telecom bills to your credit file, giving your score an immediate boost.
Some lenders offer free programs -- Score Wizard is one; Wayfinder, another -- that offer insight into what steps you should and should NOT take to raise your score. They are “what-if” programs that let you test various scenarios.
For example, bringing your credit balances down to 30% or less of your available credit is always a good way to raise your score. It shows that you use your credit wisely and are not too much in debt. But paying off years-old debt to remove it from your record isn’t so smart, because it makes the issue more current -- older problems tend to fade into the background.
Unfortunately, most what-if programs aren’t available directly to consumers, only through lenders. But there’s no law that says you have to continue with that lender if you find one offering a better deal.
Toward that end, align yourself with a good mortgage broker. There’s nothing wrong with applying at your bank, but remember that the loan officer there works for that institution alone. He or she can only offer that bank’s products.
Brokers, on the other hand, deal with a cadre of lenders and, therefore, are able to root out the best deals, whether on rates or service. Companies like United Wholesale Mortgage and Angel Oak Mortgage Solutions, both of which are now back in the market, work only through brokers.
Taking a homebuying class could also increase your odds of gaining approval, and may even help you nail a slightly lower rate. Many are now being offered virtually. Education about the process isn’t just for uninitiated first-timers; the market has changed so much that some schooling is also good for move-up or move-down owners who haven’t taken out a mortgage in 10 or 20 years.
It might also be a good idea to work with a housing counselor: a financial adviser who empowers consumers to take charge of their finances. They address credit card debt, student loans and money management, as well as housing decisions, and most work for free.
The National Foundation for Credit Counseling has a network of member offices in all 50 states and Puerto Rico. Or you can go to the Department of Housing and Urban Development’s website to find a government-certified counselor in your area. You can search by ZIP code at consumerfinance.gov/find-a-housing-counselor.
If you are unable to accumulate the 20% down payment that lenders like JPMorgan Chase are now requiring, consider applying at the Bank of Mom and Dad. Chances are, they needed some help along the way themselves.
According to the National Association of Realtors, a third of all first-time buyers received monetary help from family or friends. Apartment List, a rental-matching service, says 27% of millennials are planning to ask for monetary gifts and loans from their parents this year. And they’re not the only ones: Clever Real Estate reports that 19% of Gen Xers and 14% of boomers ask for monetary help, too.
Help with your down payment and closing costs are also available from other sources. According to Down Payment Resource, most of the 2,400 programs it tracks are open for business. Only 34 programs have shut down temporarily because of COVID-19. And all state Housing Finance Agencies are accepting reservations virtually.
As a result of the pandemic, though, credit standards and other requirements have changed. So make sure your broker or real estate agent is informed about lenders that participate in these programs.