before and after you buy a home: “The purchase of large items such as a car or excessive credit card spending, decreases how much home you can afford.”
Taking care of the blemishes on your credit report, as Pratt did, is also important. “After I started paying [my overdue utilities] on time, I got a letter of credit from the energy and phone companies saying that I was paying on time,” says Pratt. You can’t get the best mortgage unless you show your best credit score.
NeighborWorks Homeownership Specialist Milt Sharp Jr. recommends having financial documentation easily accessible to expedite the mortgage loan underwriting process. “The biggest challenge for people is having supporting documentation,” he says. “If they don’t present everything to the bank and mortgage broker up front, they will get a letter saying additional information is needed. This might delay the process and frustrate the buyer.” Sharp says you should be prepared to present two years of completed tax returns, the last six months of savings account statements, and pay stubs for the last three months. While the lender will obtain your credit report, Sharp advises buyers, “Have your own copy in case there are any discrepancies.”
For those who may not have any established credit, “lenders can use nontraditional credit as a means of qualifying an applicant. Nontraditional credit is recurring monthly debt, such as rent, utilities, child support, etc.,” Sharp explains. “These payment histories are not reported directly to a credit reporting agency and therefore would need additional documentation to support them, such as a letter from your landlord stating that you have paid your rent on time for a period of a year or more.”
Get homeownership counseling or attend homeownership classes. Visit a local homeownership organization where you can find a counselor who will
go over your credit report with you, advise you about your current credit situation, and give you credit-repair solutions. He or she can also help you determine your affordability range. Generally, these organizations will enroll you in home buyer education courses that will give you information on everything from how to get pre-approved for a mortgage loan by a bank to making home repairs. Sharp suggests Consumer Credit Counseling Services (www.cccsintl.org) and NeighborWorks (www.nw.org) as good places to find counselors. Helpful home buying information can also be found online at www.fanniemae.com or www.freddiemac.com. Check the Department of Housing and Urban Development (www.hud.gov) and your state’s housing finance agency for certified counseling agencies as well.
Taking homeownership classes before you purchase a property can be advantageous because counselors can walk you through the home buying process in advance. Pratt credits homeownership counseling for helping her before she purchased her home and afterward when she encountered the unforeseen hurdle of losing her job.
Get a preapproval from your lender. Before you shop for a home, it’s a good idea to obtain a preapproval letter from your bank or financial institution. Stephanie Simon, vice president of emerging markets for Wells Fargo Home Mortgage, says getting preapproved shows you are