Be the buyer every seller wants
The real estate market has been a buyer’s world for years, characterized by ample inventory, a dearth of qualified buyers, and a glut of highly motivated (read: desperate) sellers. But this spring, signs point to a shift back toward a seller’s market, and those shopping for a home will face increased competition from other buyers.
So how do you ensure you not only land the home of your dreams, but also get the best possible price from the seller and the best possible deal from your mortgage lender? By becoming the buyer every homeowner wants to sell to—a financially stable, creditworthy, and preapproved 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,” said 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.”
Becoming a better buyer
You can be a better buyer—one who 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 said.
“A credit score rank orders consumers on the likelihood they will default within 24 months,” he noted. “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 scores from all three major credit bureaus, so it pays to check your credit report and score with all three, using a service such as AnnualCreditReport.com. Reviewing your report and credit score lets you catch and correct errors and gives you a better idea of how potential lenders might view your creditworthiness. By the way, rest assured that obtaining this information does not impact your credit score.
Understanding your credit score is important. You can test your knowledge about credit scores at www.CreditScoreQuiz.org, a website created by VantageScore Solutions and its partner, the 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 if you qualify for Federal Housing Administration (FHA) insurance, you will likely need to make a down payment. How much will depend on many factors, including the loan program you apply for and the price of the house you’re buying. It’s a good rule of thumb to save 20 percent of the purchase cost for a down payment.
Keep in mind, the more you put down, the more instant equity you’ll have, the lower your monthly payment will be, and the better your chances are 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 said. “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.”