Home Buying in 2021
As you begin tackling the new year, you might be contemplating purchasing a new home, and with interest rates still at historic lows, the time is still right to jump at the opportunity.
Keep in mind that buying a house is like playing a complicated sport. You need to know the rules and get in shape before hitting the field. To qualify for a mortgage, your credit profile still matters. Use the five tips below to strengthen your credit profile and skillfully maneuver through each challenge to win the game.
Protect Your Credit Score: Lenders want to see you have a solid history of paying debt on time and in a consistent way. The credit score you need to buy a home will ultimately depend on your type of mortgage broker or lender. Keep in mind some lenders raised their credit score requirements amid the economic fallout from the pandemic, decreasing credit availability. Overall, be knowledgeable about your financial standing. Lenders will consider your entire credit report, as well as your financial history when considering you for a mortgage.
Be Careful with Cash: Avoid depositing cash. Cash does not leave a paper trail, making it difficult for lenders to source. Also, limit how often you move money from one account to another. Multiple transfers can cause suspicions with lenders and may cause more issues along the way.
Down Payment Determination: There are various types of loans to choose from and they all require different down payment amounts. A common myth is that a 20 percent down payment is required, however depending on the type of loan, there are numerous financing options available to you. There are loan programs where your down payment could be as low as 3-3.5 percent and in some cases you may be able to borrow up to 100% of the sales price. Your lender will determine what your qualifications are by your credit score, assets, debt-to-income ratios, and other factors.
Expected Work History: Lenders want to see a two-year work history at the same company and with a consistent schedule. If you change companies but stay in the same industry, there should be no problem. Further, if you continue to advance in income or benefits within the same line of work, lenders consider that favorable. However, if your routine changes (for example, full-time to part time, salary to commission) even in the same industry, it may cause a problem.
Get Pre-Approved: When you go through the pre-approval process, it means the lender has reviewed your financial documents and understands the kind of home you can afford. To become ‘pre-approved’, you typically meet with a lender and provide various financial documents (examples include full tax returns, W-2s, and paystubs). Keep in mind that you may be asked to provide more documents depending on the loan type and personal situation.
Bottom Line:
At Unity Catholic Federal Credit Union, we understand that buying a home is stressful and it is our priority to help you secure a financially stable future. Whether that looks like purchasing your first home to start earning equity or an investment property to generate additional income, we can help you reach your goals in 2021. As you continue to explore this exciting step, our Guide to Homeownership can provide you with answers and help you in setting realistic goals.