This was an actual question posed to me recently. Alana has wanted to buy a home for a while, but through various conversations and her own research she'd determined that the only way to qualify for a mortgage was to be debt free with perfect credit and 20% down payment. As a result of this misinformation she's been sitting on the sidelines renting an apartment she hates. First, I dispelled some myths, then I offered a few suggestions.
This was an actual question posed to me recently. Alana has wanted to buy a home for a while, but through various conversations and her own research she'd determined that the only way to qualify for a mortgage was to be debt free with perfect credit and 20% down payment. As a result of this misinformation she's been sitting on the sidelines renting an apartment she hates. First, I dispelled some myths, then I offered a few suggestions. Here's what Alana and I discussed:
1. It is not a requirement that you be 100% debt free before buying a home. You do need to show that you can afford your monthly mortgage and other debt payments. Fortunately, federal student loans offer several repayment options that align with your income (some private lenders do the same). Because student loans will stay with you until death or payoff, paying the balance down is a good idea - not to mention it will help you qualify for more home.
2.Having a good credit score is a major factor in getting a low interest rate. However, a perfect credit score of 850 is in no way required to qualify for a mortgage. HomeFree-USA Homeownership Advisors are able to get people with scores of 680 or above approved for a loan with excellent terms.
If you do have a score below 680, the best way to increase it is to pay your bills on time. If you can't automate your payments via the company’s website, there are several free bill pay apps available (your bank may even offer one). I use Mint and my bank.
3. Having a downpayment of 20% is absolutely not required. In fact, most loan products are designed with a lower down payment, typically 3-10% (some lenders go as low as 1% but there are several factors that determine eligibility). Plus, many state and local governments offer down payment assistance funds. While some are loans, most are grants that do not have to be repaid as long as you remain in the home for a certain period.
1. Paying down Alana's student loans with on-time monthly payments will increase her credit score. If she is late on any bills she needs to bring those current immediately.
2. Once all bills are current, she does need to save some money. In addition to the 3% down payment, Alana should prepare for moving expenses and the setup of her utilities at her new home.
3. Speak to a Homeownership Advisor. When Alana sat down with one of our HA's, they created a personalized roadmap that outlined how much she needed to save, whether she qualified for any special down payment money, how much (if any) debts need to be paid off to secure a decent mortgage loan, and answered several other questions she had.
Alana was so happy to learn about our program! She wasn't even aware of HomeFree-USA before we met. She had her first meeting with her Homeownership Advisor last week and should be ready to start looking for a home by early Summer.
Alana is a classic example of what happens when homebuyers don't seek assistance. Don't rely solely on the internet and assume that you can't qualify. You may be renting longer than needed. Contact HomeFree-USA today.
And so it is.