Hi, I’m Tom Scott, Realtor® with Jean Scott Homes at Keller Williams Advantage Realty. Today I’m answering questions submitted from first-time home buyers about what goes into the home buying process.
Question #1: “What should my credit score look like?”
The required credit score will vary between lenders and between programs offered. On average, the minimum credit score for conventional loans has been 620 and for FHA/VA it has been 580. During COVID-19, there is a concern that some of the lower down payment loan options may be more at risk for a first payment default or forbearance due to loss of income and no reserves to rely on to pay bills. So, the appetite for credit scores under 640 has been weak which has impacted those rates. In general, the industry is finding it difficult to price a rate for scores under 620. When you can get a rate quote, it will include points/fees that will increase the buyers cash to close. They may not be able to afford what they are offered.
Question #2: “And if I’m buying it with my significant other, is it based off my credit score or a combined average of both our scores?”
Lenders use the lowest median credit score of all parties qualifying for the loan. If we have multiple borrowers on a loan and we don’t need the income, we may remove someone with a lower credit score as a strategy to obtain a better rate.
Question #3: “Will my student loan or car loan debt affect my ability to purchase?”
Any debts on your credit report will be included in your debt ratio for qualify for a loan. Yes, your car loan and student loans will be counted. The monthly payment for the student loan will depend on the loan program and what information appears on your credit report. In some cases, even if your payment is $0 or deferred, we will still have to calculate a minimum payment that could be .50-1.00% of your balance. It depends on the loan type that is recommended for your scenario. Counting a payment higher than $0 may in turn impact your buying power.
Question #4: “Do I wait to get a home until I’ve paid more of my loan off?”
Should you save more money or wait until debts are paid off? It depends on the individual scenario. It is important to talk to a reputable lender that is willing to help you plan for your purchase. These are things we can discuss and the answer may vary between borrowers. Most clients do not realize that we offer loan programs with 0-5% down. Some clients want to wait until they have a larger down payment, but when we look at the realistic time frame it would take to do so, they may miss out on lower rates and home prices. This must be considered. In addition, some clients think they need to pay off debt that they actually qualify with right now. Seek the advice of lending professional that can discuss your individual concerns.
Question # 5: “What kind of loans are out there for me?”
Determining the best loan program is something we tailor to each individual after a detailed interview. We take into consideration your credit score and history, planned down payment (funds available), income and employment history and your debt ratio. We need to know this information in order to suggest a program that works best for your current situation. This is the largest purchase that most people will make in their lifetime, so we want to give advice based on your current situation as well as your long-term goals. In general, the majority of loans that we do are 30-year fixed rates with no penalty for paying off early. We help clients purchase and refinance homes. We make sure that we share hypothetical examples when determining buying power. We want our clients to see an example of payment and cash to close in the price point they plan to shop with their Realtor before they start looking for their dream home.
Thank you to everyone who submitted a question to us! We’ll be making more posts with answers to questions from first-time home buyers like you. Submit your questions to [email protected].