Best advice I would give to first-time homebuyers

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Published Date 10/11/2017

I was once asked: We're in the process of hopefully purchasing our first home, and I'm a little lost on everything that is going on. What's the best advice you would give to first-time homebuyers?

Without question, your first step in the home buying process is to begin getting your financing in order. I realize this may seem like slightly self-serving advice since I am in the mortgage business, but the fact is that most people who buy homes today do so with a mortgage. That part is often the most challenging, with far more moving parts and potential snags than in years past.

This fact should not intimidate or deter you; getting a mortgage today is more involved, but it is not the impossible task some would have you believe it is.

It's an excellent idea to know the shape of your credit. Lenders do NOT require that every applicant is solid gold and squeaky clean, but you should be aware where you stand at the outset. If there are errors on your report, or old past-due accounts you have forgotten about or public records (judgments, etc.), now is the time to be aware of them and deal with them.

You can get a free credit report from sites like Free Credit Report.Com or Creditkarma. Most of those sites will try to sign you up for various premium services, but what you're interested in at this stage is whether there are items that you should take care of to get approved for a mortgage. If there are any past due accounts, you should bring them current as quickly as possible. Likewise, if there are judgments or collection accounts, try to settle them. In particular, lenders require that any public record items (judgments and liens) be resolved before closing.

Be aware that collection agencies will typically settle for much less than the amount listed on the credit report—but you'll have to report as income the amount they reduced the debt to settle. You should be very careful about paying off any collection accounts older than two years. Doing so will upgrade the status from "collection" (bad) to "paid collection" (slightly less bad). The problem with this is that it will also change the "Date of Last Activity" (DLA) on your report. A collection account that is, say, three years old may reduce your credit score by 10 points. A recent "paid collection" may reduce it 20 points or more.

It's not too early in the process to find a loan officer to help you with this part of the process. You should specifically look for someone with whom you feel comfortable and confident. It is not worth focusing on the rate someone may offer if they aren't available to be your trusted adviser. You want someone who responds promptly to emails, phone calls, and texts, and who gives you straightforward answers in plain language. The difference in rate between different lenders is quite small since all lenders sell their loans to the same pool of investors for the same price on any given day.

When you've found a loan officer you like, you should begin the preapproval process. You'll typically provide current pay stubs, W2s, and bank statements. The loan officer will help you with your application, then submit it to the Automated Underwriting System (AUS). They will get an answer literally in seconds. You are hoping for AUS findings of "Approve/Eligible" or "Accept," depending on which system they are using. The AUS findings will specify what, if any, additional documentation you might have to provide. The important thing is to get your starting point.

You should ask your loan officer if they can do a "TBD Approval." This means that they will submit your loan application to an underwriter for review and approval even though the property is "To Be Determined." When you get your loan approval back in a day or two, it will be the same as though you had an actual "live" deal. Having an underwriting approval in hand will make for a much stronger offer to the seller. This can be a make-or-break a deal if you find yourself competing with any other buyers for a property.

I hope this is useful. Good luck!

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