“credit score,” a standardized measure used by many lenders to assess potential borrowers (900 is considered an ideal score). “Credit scores over 620 have a good chance for a conventional mortgage,” says Debbra Carrigan, residential mortgage sales manager for Bank of America in Oakland, California. “If you’re below that score, and especially if you’re below 600, you may have to use more creative financing and pay a higher interest rate.”
Even if you have had credit problems, don’t give up on looking for a mortgage. When Ronald Jacobs, 41, and his wife, Bonita, 35, of Oakland, California, filed for bankruptcy in 1998, they were told by lenders to keep a clean credit record for two years before applying for a mortgage. “We kept our record clean, kept current on all bills, and went through a first-time homebuyer’s program sponsored by a local community group,” says Ronald. Working with Carrigan, the couple found a 30-year, fixed-rate mortgage in 2000 and have since refinanced at a lower interest rate.
4. How Much Can Your Afford?
In real estate lingo, you need to be “pre-qualified” to buy a house for a given amount. No real estate agent will bother showing you $300,000 homes if your finances won’t stretch beyond $50,000.
“[Being pre-qualified] just gives you an idea of how much of a mortgage you can expect, based on your income,” says Keith Gumbinger, vice president of the Butler, New Jersey-based HSH Associates, a financial publishing company that compiles mortgage industry data. “As a rule of thumb, you can get a mortgage of 2.5 to 2.75 times your income.” Thus, if you make $60,000 a year, you might be pre-qualified for a mortgage of $150,000–$165,000. You can calculate how much home you can afford at blackenterprise.com (blackenterprise.com).
5. Decide On A Lender or Broker
When lining up financing, you can work directly with a lending institution or you can hire a mortgage broker who’ll choose from a number of lenders.
“I started out with a broker through a referral,” says Janine Greer, 35, an insurance adjuster in Oakland, California. “It soon became apparent that he didn’t know what he was doing; he was telling me that I’d have to sell my car to get rid of my car loan in order to get a mortgage. The bottom line was that he never found a lender. Fortunately, I connected with Debbra Carrigan at Bank of America, who put together the loan I needed.”
There are instances, however, when brokers can work in your favor. “If your credit history is not great, a broker may be helpful in shopping for the best possible deal,” says Holden Lewis, a reporter for Bankrate.com in North Palm Beach, Florida. “However, you need to do some research or get references in order to find a competent, trustworthy broker.”
Gumbinger says start locally. “If you already own a home, you might begin with your present lender. Otherwise, ask people you know for leads. Find out who has had a good experience.”
Grumbinger warns against finding your loan online. “The Internet