September 11, 2014 11:11 AM
In this special section to Boston.com, we consulted a wide array of experts from various sectors of the real estate market for their advice on making the homebuying and selling process go as smoothly as possible. In this edition, Rick Scherer, vice president and senior mortgage planner for MSA Mortgage in Winthrop, shares his advice for buyers on getting their financial affairs in order before starting their house hunt. He also shares some tips on having the best possible credit score.
Tip 1: I need 20 percent down?
A big misconception with a lot of first time homebuyers is that they need to save up and put a large down payment to purchase a home. The fact is there are programs in our marketplace that allow you to put as little as zero money down, 3 percent or 5 percent down with options that offer no monthly private mortgage insurance (PMI) payments. For some, your mortgage payment will be the same and sometimes lower than what you might be paying in rent.
Tip 2: Follow the money!
One of the more tedious parts of the loan process for a borrower is assets and bank statements. The underwriter on your loan is looking to follow the money on every large deposit that is non-payroll. Now isn’t the time to open up new bank accounts, deposit the cash from under your mattress, or get that big loan payback from your friend. Remember that the underwriter needs to follow the money so make it easy on yourself and keep track of the checks you deposit and if you are moving money around from different accounts, you need to provide a proper paper trail.
Tip 3: Credit … It can be tricky
Did you know that the credit score that you receive when checking the “free” credit sites or the score on your credit card statement is NOT the same credit score that lenders will see when they are checking your credit score? These free scores are called consumer scores and use a different scoring model than the Tri-Merge credit report that a mortgage lender uses. The consumer score is often significantly higher than the lending score.
Here are a few quick tips on having the best credit score when it comes time to buy:
Credit Tip 1
Keep your revolving debts (credit cards, lines of credit) at or below 30 percent of the available limit. This will show creditors you are responsible with your revolving debt.
Credit Tip 2
Do you have old collection on your credit report? Don’t pay those off just yet. Paying off old collections will bring the trade line current and the “clock” will start over again. This will typically drop your score.
Credit Tip 3
Don’t close credit cards before applying for new credit. This will negatively affect your credit score because you are taking away different ways for creditors to rate you as a borrower.
Credit Tip 4
Once you have applied for a mortgage, it is not the right time to go apply for more credit in your name. Your credit will be re-checked within 10 days of closing to make sure that no new debt was obtained. If your debt to income ratio is tight, it could negatively affect your ability to qualify for a mortgage at the last minute.
More in this series: