Tag Archive for: first-time homebuyer

Down Payment Assistance Options For First-Time Homebuyers

April 17, 2024

New house, moving and happy couple carrying boxes while feeling proud and excited about buying a house with a mortgage loan. Interracial husband and wife first time buyers unpacking in dream home

One of the biggest hurdles for many first-time homebuyers is getting that down payment together. We understand, especially if you’re trying to scrape together 20% of a home’s purchase price [insert large gulp here].

There are two things that many first-time homebuyers don’t realize, though:

You generally don’t have to put a full 20% down on a home.
Tons of down payment assistance programs ready, willing, and able to help you out when buying a home.

What is down payment assistance?

Down payment assistance is a helping hand in the form of grants, loans or gifted funds that can give you a boost in covering that initial down payment requirements that come with buying a home.

There are various programs out there, often funded by government agencies or non-profit organizations, designed to support buyers in becoming proud homeowners. These programs can provide you with the funds for your down payment requirements and some programs will also cover closing costs.

One of the great things about down payment assistance is that it’s not a one-size-fits-all deal. There are different programs with different eligibility criteria, so you can find one that suits your specific situation.

Some programs might be based on your income, others on the location of your dream home, and some might even be tailored for certain professions. It’s like having a menu of options to choose from, making it easier for you to find the right fit.

Down payment assistance may be your ticket to turning that dream home into a reality. In this blog, we’ll explore several of the national down payment assistance programs. It’s important to note that there may be programs offered in your local community or in your specific state. For a comprehensive look at the programs available to you, click here to connect with a Preferred Rate Mortgage Advisor in your area.

Popular Down Payment Assistance Programs

You know who else is ready, willing, and able to help with down payment assistance programs? Preferred Rate.

Let’s deliver that help ASAP by outlining some of the most popular down payment assistance programs. Many loan programs are offered at the state and local government level, as well as the national level. This can give giving first-time homebuyers the financial boost they need when buying a home.

Chenoa

The Chenoa Fund offers down payment assistance to low- and moderate-income homebuyers. Through Chenoa, eligible buyers can receive forgivable loans that cover a portion of their down payment and closing costs. These loans don’t accrue interest and are fully forgiven after some time, typically three to five years.

Within Reach for FHA loans

Another down payment assistance option for first-time homebuyers is the Within Reach program offered by Land Home Financial Services. This program provides low-interest loans as a means of helping with the down payment and offering assistance with closing costs.

By offering down payment assistance at a lower interest rate, Land Home FHA Within Reach helps first-time homebuyers save money on their mortgage payments over the life of their loan.

Lakeview National

Lakeview National is another one of the loan programs that offers down payment assistance. Even better news? This program is nationwide!

Eligible first-time homebuyers can receive grants or loans as a form of down payment assistance and closing cost assistance. These funds can help first-time homebuyers bridge the gap between their savings and the amount they need when buying a home.

1 Percent

The 1 Percent program makes the math easy. It offers down payment assistance of up to 2% of the home’s purchase price (up to $4,500). This program is particularly beneficial for first-time homebuyers, as you are allowed to combine it with many other down payment assistance programs. These are the types of down payment assistance programs we can really get behind!

Fannie Mae HomeReady

Fannie Mae has a great down payment assistance program offering up to $2,500, which you can combine with its HomeReady program. It’s especially helpful for first-time homebuyers who may have limited household income or credit history. That’s because this program allows eligible buyers to qualify for low down payment mortgage loans with flexible underwriting criteria.

The program also offers down payment assistance in the form of grants or deferred payment loans.

Freddie Mac Home Possible

Like Fannie Mae, Freddie Mac offers a similar $2,500 in down payment assistance when coupled with its Home Possible loan program. It offers down payment assistance in the form of low down payment mortgage loans for first-time homebuyers. If you qualify as a first-time homebuyer, you can obtain mortgage loans with as little as 3% down.

The Importance of Consulting a Mortgage Lender

All these down payment assistance programs are crazy exciting—especially for first-time homebuyers—we know. But here’s where we have to slow our roll a little.

While it’s always good to educate yourself on the various types of down payment assistance offered, you need to consult with a mortgage lender before you go too far down the road and start celebrating.

That’s because eligibility requirements and available assistance can vary by program and location. This can be true whether the loan programs are offered through your local government or through major national programs like the U.S. Department of Housing and Urban Development (HUD). On top of that, you want to make sure you and your mortgage lender pick the right down payment assistance programs for you.

Now, you may be thinking, “But any help with the down payment or closing costs assistance is right for me! I just want to save money.”

Totally valid—we hear you. But there are many other factors to consider, like your priorities.

Some types of down payment assistance programs offer a lower interest rate. Others may provide better perks if you have limited household income. Some first-time homebuyers love the idea of forgivable down payment assistance loans, while others will qualify for deferred payment loans.

This is why, in addition to a real estate agent, you need a knowledgeable, trusted mortgage lender in your corner, especially if you’re new to this as a first-time homebuyer. Though the above is just a sampling of the types of down payment assistance programs available, they can certainly bring hope to first-time homebuyers who are working toward buying a home.

Ready to Save Money?

So take advantage of these down payment assistance programs as a first-time homebuyer and achieve your homeownership goals while minimizing your costs. Whether you’re a recent college graduate, a young professional, or a growing family, there may be options out there to make buying a home more affordable and accessible.

Click here to connect with a Preferred Rate Mortgage Advisor today.

Who Qualifies as a First-Time Homebuyer?

April 10, 2024

Multiracial couple holding keys and standing outside their new h

We know the story: Part of you is thinking about homeownership, but another part is unsure whether you’ll qualify as a first-time homebuyer. The mortgage process can seem intimidating the first time around, which is completely understandable. You haven’t owned a home before!

Not to worry, though, because Preferred Rate is here to shed some light on what it means to be a first-time homebuyer, the loan programs available to you, and any questions you may have on items like minimum credit scores, down payment assistance, interest rates, closing costs, income limits, and more.

So let’s get to it!

What Is a First-Time Homebuyer?

Let’s start with the basics: First-time homebuyers are generally defined as those who have not owned a primary residence within the past three years. This definition can vary slightly depending on which loan programs you’re considering.

Who Qualifies as a First-Time Homebuyer?

It may sound strange, but contrary to popular belief, the term “first-time homebuyer” refers to more than just people who haven’t owned a home before. You may still be considered a first-time homebuyer if you owned a home in the past but meet certain criteria.

For instance, if you’ve experienced a significant life event that prevented you from purchasing a home in the past three years, such as a divorce or a foreclosure, you could still qualify for some first-time homebuyer loan programs.

Naturally, the qualifications can vary based on the loan program. With a VA loan, offered through the Department of Veterans Affairs, you must be an active-duty service member, veteran, or surviving spouse of either group. A first-time homebuyer would still have to meet all the qualifications for the VA loan as a first-time homebuyer, in addition to proving their eligibility status.

Can You Have Previously Owned a Home?

As we just touched on, yes. There are instances where you might have owned a home before but can still qualify for a first-time homebuyer program. Typically, the most important stipulation is that you can’t have owned a primary residence within the past three years.

What Programs Are Available to First-Time Homebuyers?

There are lots of loan programs created specifically to help first-time homebuyers achieve their goal of owning a single-family house. These programs are often offered through government entities, such as the Federal Housing Administration (an FHA loan), the Department of Veterans Affairs (a VA loan), and the Department of Housing and Urban Development (a HUD loan).

For example, the FHA loan program provides some benefits to first-time homebuyers, including lower down payment requirements and lower minimum credit scores. VA loans also offer those who qualify as a first-time homebuyer—and who are veterans/active-duty service members/surviving spouses—the chance to purchase a home with no down payment. There’s no better form of down payment assistance than that!

You’ve also got Fannie Mae and Freddie Mac. They offer loan programs that assist first-time homebuyers in accessing affordable mortgage options with competitive interest rates and flexible eligibility requirements. These include financing up to 97% of the purchase price, meaning that you make a 3% down payment.

You can also use nontraditional income sources such as alimony payments, Social Security, rental income, and so on, to qualify for these guaranteed loans. A mortgage lender can give you the lowdown on all the attractive loan programs that may be right for you.

Many people also overlook the various incentives for purchasing in rural areas. The U.S. Department of Agriculture offers loans that are guaranteed by the USDA Rural Development Guaranteed Housing Loan Program. These loans generally offer no down payments and lower interest rates if you buy in rural areas.

Do You Need to Be a First-Time Homebuyer to Take Advantage of Down Payment Assistance?

Down payment assistance (DPA) programs are frequently available to first-time homebuyers to help mitigate the upfront costs associated with buying a single-family home. These can include the down payment and closing costs.

You may assume that these programs are normally for first-time buyers, since they may need the most help on their first single-family home purchase. But many DPA programs are open to other buyers as well. These can include those who meet certain income limits, minimum credit scores, and other criteria, regardless of whether they’ve owned a home before. DPA programs tend to vary by location and may be offered at the federal, state, or local levels.

Need More Help with Your Home Purchase?

The term “first-time homebuyer” can apply to more than just individuals who have never owned a home before. Those who haven’t owned a principal residence within the past three years may still qualify for various loan programs and closing cost assistance programs designed to make homeownership more accessible for everyone.

Even with all this information, it’s important to consult a knowledgeable mortgage lender when determining who qualifies as a first-time homebuyer. Our Preferred Rate Mortgage Advisors can guide you through the process and help you discover which loan programs you qualify for.

Whether you’re interested in an FHA loan, a VA loan, or a conventional mortgage, there are almost certainly options out there that will fit your financial situation.

So we’ll leave you with this: Homeownership is within reach for many, many people, regardless of whether you’re a first-time homebuyer or have owned a home before. With the right resources and guidance, you can achieve your dream of owning a home.

Contact a Preferred Rate Mortgage Advisor today to explore your options and get on the path to homeownership!

8 Questions Homebuyers Should Ask About Mortgages

March 11, 2024

Finally a home of our own. Shot of a young couple celebrating the move into their new house.

We know you know that buying a house is a major investment—one that can pay off in more ways than one, but still a major investment. This can weigh on a first-time homebuyer who has never made such a large financial commitment.

First, congrats on even considering taking this step! Buying a home requires confidence, perseverance, and knowledge. Second, if you’re freaking out because you’re not sure you know everything you should about getting a home loan, fear not.

A real estate agent is there to help you house-hunt and submit an offer on the home of your dreams. A loan officer is there to walk you through the mortgage process. They will help you figure out what your monthly payments might be, the terms of your home loan, and any other financing questions you have when buying a home.

If you’re a first-time homebuyer, you may not know exactly which questions you should ask. Or you may just be too embarrassed to voice them. Understand that there are no stupid questions when it comes to buying a home, especially as a first-time homebuyer. A trusted loan officer not only recognizes that you don’t know what you don’t know, but they are also a pro at walking you through every step of the process.

So let’s answer some of the most common questions homebuyers should ask. That will make it easier to move on to the fun stuff (like imagining the man cave or she-shed you plan to erect in the backyard).

1. How Much Home Can I Afford?

Fact check: Calculating a budget is the first step in the homebuying journey. You’ll want to figure in things like your income, debts, and expenses to come up with a realistic number. Remember, too, that just because you can qualify for a larger, more expensive house doesn’t mean you need to max out your budget.

Reducing that number by thousands of dollars (or tens of thousands of dollars) can make a noticeable difference in your monthly payments. Plus, you will want to save some cushion for all the expenses that come with buying a home. These include a home inspection, homeowners insurance, a home warranty, and some money set aside for repairs or upgrades to major systems.

2. What Will My Monthly Payments Be?

Fact check: Naturally, the monthly payments on a home loan vary for everyone. That’s because there are many factors that go into this calculation. You have to think about the cost of your home, the closing costs associated with the loan (and whether you choose to roll those costs into the mortgage or not), the size of your down payment, your interest rate (and whether it’s fixed or variable), and the term of your loan.

You should remember to add in any homeowners association (HOA) dues. Also consider the cost of private mortgage insurance (PMI) if you’re putting less than 20% down with most loans. Preferred Rate’s Home Affordability Calculator can help you get an accurate sense of what your monthly payments may be, based on a few variables. A Loan Advisor can help you get a good estimate as well.

3. How Much of a Down Payment Do I Need?

Fact check: You will often hear recommendations for a 20% down payment, but many home loan programs offer flexibility by including much lower down payment options.

The amount of the down payment can vary based on several factors, including the type of loan, the requirements, and the buyer’s financial situation. Here are some general guidelines for common mortgage types:

Conventional loans: Typically require down payments ranging from 5% to 20%. Some lenders may offer conventional loans with a down payment as low as 3%, especially for first-time homebuyers.
FHA loans: These loans require a minimum down payment of as little as 3.5% of the purchase price. FHA loans are popular among first-time homebuyers due to their lower down payment requirements.
VA loans: Eligible veterans and active-duty military personnel may qualify for VA loans, which often require no down payment.
USDA loans: These loans, designed for homebuyers in more rural areas, may also offer 0% down payment options.

It’s important to note that a higher down payment typically results in lower monthly mortgage payments. It may also affect the interest rate on the loan. You should carefully consider your financial situation, your goals, and the specific loan programs available to determine the most suitable down payment amount for your circumstances.

Your loan officer can also help with this by reviewing all the pros and cons of each option available.

Down payment assistance (DPA) programs and gift funds can also help you close the gap. Down payment assistance programs often come in the form of grants or low-interest loans, providing a valuable resource for individuals looking to make their homeownership dreams a reality.

Additionally, gift funds from family members or friends can contribute to the down payment, easing the financial burden on the buyer and facilitating a smoother transition into homeownership.

4. How Much Are the Closing Costs?

Fact check: Closing costs typically range from 2% to 5% of the home’s purchase price. They include various fees, including lender fees, the home inspection, the title, and escrow services.

Lender fees are charged by the lender for processing and facilitating the loan. These fees can include a loan origination fee, application fee, processing fee, and underwriting fee. These fees do not necessarily apply to all loans, but your loan officer can go over which fees apply to the options you’re considering. Additionally, your loan officer will provide a full loan estimate at the time of application (or very shortly thereafter) so you can get a clear look at the overall costs.

Getting a home inspection is totally up to you, but it can be a super smart move. It’s like giving your future home a thorough check-up before you seal the deal. This way, you can spot any sneaky issues hiding behind the walls or under the floors before you make it official.

Additionally, there are government-related fees, such as recording fees and transfer taxes, which vary by location and are essential for legally documenting the property transfer. There are also third-party fees, such as title insurance, credit report, appraisal, and escrow fees.

There’s also homeowners insurance to consider. Lenders will ask for it to be in place in time for closing. Also, when you’re sorting out the nitty-gritty at closing, you might bump into some other expenses, like property taxes and HOA fees, which are often prorated and paid in advance at closing.

Your Loan Advisor will provide a detailed breakdown at the start of the process so you can take a look at all the closing costs. They’ll explain the different ways you can cover these fees—including rolling them into your home loan.

5. What Documents Will I Need?

Fact check: When applying for a mortgage, you’ll want to provide financial documentation like W-2s, pay stubs, bank statements, and tax returns. And in a perfect world, you will get pre-approved before you start the house-hunting process.

Each loan program has specific requirements that your Loan Advisor can discuss with you in detail.

6. What Is the Interest Rate, and Should I Lock It In Now?

Fact check: Interest rates play a major role in your monthly payments and overall affordability when buying a house. They also change on a daily basis. This means that the rate you see when you first begin to think about buying a home may not be the rate you’re able to lock in once you complete your home loan application.

Since rates change so frequently, there is no one right answer about whether it’s best to lock in your rate or let it float. What you can do is discuss it with your Loan Advisor, which is why this is one of the best questions to ask when buying a home. Programs like SecureLock™ also offer peace of mind by locking in today’s rates for an extended period.

7. Are There Any Pre-Payment Penalties with This Home Loan?

Fact check: Paying off your loan early can save you thousands of dollars in interest over the long run. However, some loans may have pre-payment penalties where you’re actually penalized for paying your home loan off early.

That’s why this is one of the important questions homebuyers should ask before settling on a loan. It’s perfectly fine if you opt for a loan with a pre-payment penalty if your game plan is to keep the loan through the pre-payment period. But it’s something you’ll want to discuss before you sign on the dotted line. If pre-payment penalties are a deal-breaker for you, then your loan officer should know that.

8. Are There Any Other Things I Should Consider?

Fact check: In addition to the mortgage-centric questions above, there are other factors to think about when buying a home.

As mentioned, you’ll want to conduct a thorough home inspection to identify any problems with the house. Also verify the condition of major systems, including plumbing, electrical, and HVAC. This can help you avoid any surprises that can cost thousands of dollars.

You have to keep in mind that once the sale closes, the house is yours for better or for worse. You can always negotiate on points like which items the seller is including in the sale of the house. And you can certainly request repairs or upgrades in your offer.

But only the items signed off in the final sale will make the cut. Any problems with the house after the fact are now yours to handle. With that in mind, there are a few more questions homebuyers should ask before they get too far into the home search. They include:

How long has the house been on the market?
When was the last time the seller repaired or replaced any major systems?
What items are included in the sale of the house?
Has the homeowner had any problems with the house recently?

Your real estate agent can work to get you these answers. You can also consider buying homeowners insurance and a home warranty. These protections can provide peace of mind if problems with the house do materialize.

Help with Home-Buying

We know that starting the mortgage process is a major step for a first-time homebuyer who’s thinking about buying a home—and we’re here with you and for you. Contact us anytime to get some basic information, have your specific questions answered, or start the home loan process.

Interest Rate Buydowns: Permanent vs. Temporary Buydowns

March 4, 2024

Many would-be homebuyers are feeling the pinch from rising interest rates, but you don’t have to! Preferred Rate has buydown options to help you reduce your mortgage interest rate and get you the lowest monthly payments possible.

Interest rate buydowns are the key to lower interest rates, a smaller monthly mortgage payment, and saving you money.

The current housing market has kept many buyers on the sidelines. When interest rates were low, competition was fierce, and prices were high. With higher interest rates today, it’s harder for buyers to qualify. And even if they can qualify, the idea of a higher mortgage payment can be cause for pause.

That’s why Preferred Rate provides solutions for borrowers with permanent or temporary interest rate reduction options. Both temporary and permanent rate buydowns provide opportunities to reduce your monthly payments.

Temporary Buydowns

Preferred Rate offers borrowers two temporary buydown programs. The first is a 3-2-1 buydown, where the interest rate is reduced by 3 percentage points the first year, 2 percentage points the second year, and 1 percentage point the third year. You can read more about this program by clicking here.

Preferred Rate also offers a 2-1 buydown. This program reduces the interest rate by 2 percentage points during the first year and 1 percentage point in the second year of the loan.

At the end of your buydown term, the interest rate will adjust to the original rate (the full interest rate that you locked in when you bought your home). It will stay at this rate for the duration of the home loan or until the loan is refinanced or paid off.

These programs are great options, because temporarily lowering your interest rate allows you to gradually work up to making the full payment. This can take massive pressure off you as a new homeowner.

As we know, interest rates don’t stay stagnant; they rise and fall and change direction. If interest rates ever fall to a level that makes sense for you, you can consider refinancing.

And here is even better news: The money for the temporary buydown goes into an escrow account and is applied to your loan every month during the buydown period. If you refinance or sell during that period, the unused portion gets applied to your home loan, reducing the balance of your loan.

This type of strategy allows you to take advantage of today’s buyer’s market—one in which sellers are much more open to concessions and negotiations than they were even six months ago. You will also face less competition, which means you have a better chance of making a successful bid on your dream home.

Having your mortgage lender provide a pre-approval that incorporates buydown scenarios to include with your offer can also help secure those seller concessions to pay for the buydown!

Permanent Buydowns

Our second interest rate buydown option is a permanent buydown. This type of buydown lasts for the entire loan term. With a permanent mortgage rate buydown, you pay a fee known as discount points to lower your interest rate for the life of your loan. You can purchase as little as 0.125 of a point or as much as 4 points, depending on the loan program.

Each point is equal to 1% of your loan amount, and this fee is due at closing. For example, if your loan amount is $500,000, then 1 point will cost $5,000. It’s best to determine how long you want to remain in your home before investing in a permanent buydown. This is to ensure that you can recoup the upfront costs through a lower payment amount over time.

The breakeven point on permanent buydowns will depend on how much you have contributed and the overall monthly savings. Your Preferred Rate Mortgage Advisor can give you a breakdown of your specific scenario to ensure that you make the right decision.

If you’re planning to stay in your home for 10-plus years, a permanent buydown can save you a lot of money. However, if this home is more of a stepping stone for you, it may be wiser to choose a temporary buydown that can yield some good savings for 12 months or 24 months.

With a lower monthly payment amount, you can put the money you save toward your home, credit card debt, student loans, or an emergency fund. A lower interest rate also means you can qualify for more house, which can be a big deal in many markets.

Benefits of Interest Rate Buydowns

Whether you choose a temporary or permanent rate buydown, there are benefits to you:

Lower payments: By paying a lump sum upfront, buyers can secure a lower interest rate for the initial years of the mortgage—or permanently. This relief makes homeownership more affordable initially and over the long term.
Improved affordability: Lower monthly payments can enhance a buyer’s ability to qualify for a mortgage and to afford a more expensive home. This can be particularly beneficial for first-time homebuyers or those with tight budgets.
Financial relief: Interest rate buydowns provide relief by reducing the financial strain in the early years of homeownership. This can be helpful for buyers who anticipate an increase in income down the road or will have other financial priorities during the initial years of the mortgage.
Easier budgeting: Predictable and lower monthly payments make it easier for buyers to budget and manage their finances. This stability can be especially valuable for those who prefer to make consistent payments while adjusting to the responsibilities of homeownership.
Potential long-term savings: Depending on the buyer’s financial situation and how long they plan to stay in the home, the savings from lower interest rates can outweigh the upfront cost of the buydown. This can result in long-term financial benefits.

And here’s another piece of good news: When sellers are motivated, they may be willing to pick up the fees involved with your permanent or temporary buydown. Seller concessions toward closing costs have been popular in creating one more reason why this could be the ideal time to buy a home.

Is an Interest Rate Buydown Right for You?

It’s important to weigh the pros and cons of an interest rate buydown with a mortgage professional who can consider your current financial situation and short- and long-term goals. To connect with a Preferred Rate Mortgage Advisor, click here.

Disclaimer: Subject to change without notice, terms and conditions apply. Equal Housing Lender.

How Much One Extra Mortgage Payment Can Save You

January 9, 2024

happy family mother father and child daughter dancing at home

You finally own that home you always wanted. You’re benefiting from the financial perks, but with a new home comes a new monthly mortgage payment … and perhaps a new interest rate to consider.

You may not know this, but at the beginning of your mortgage, a lot of that monthly mortgage payment goes toward interest. That’s because your loan balance is still at or near the original amount you borrowed since you’ve just started paying it off.

When you’re calculating your annual budget with your new mortgage payment, it can be wise to consider paying extra toward your mortgage in the form of an additional payment.

There are three reasons why this could be a smart move for you. You might be surprised at how much money one extra mortgage payment can save you.

Reason #1: Saves Money on Interest

When you pay extra money toward your mortgage payment, you can specify that you want that money going toward your principal.

This will gradually—but noticeably—reduce your loan balance.

And what does a reduced loan balance mean? It means you’ll pay less interest over time. It means you can pay off your mortgage early. It means you’re saving money.

The lower your loan balance, the less interest is added to the mortgage payment each month. These savings won’t affect your monthly payment during the loan. But by the time you pay it off you will have saved thousands of dollars in interest—and reduced the time you’re making those pesky monthly payments.

Reason #2: Build Equity Faster

As you reduce your principal and interest, your equity increases (assuming home values are maintained). Having equity built up in your home increases the value of your investment, which translates to increased profits if and when you decide to sell.

Equity also provides an option for future home improvement loans, if needed.

And if you have less than 20% equity and are paying PMI (private mortgage insurance), those extra payments will help get you to the 20% threshold faster so you can eliminate the PMI payment.

Reason #3: Pay Off Your Mortgage Early

What can one extra payment a year really do to the term of your loan?

That one additional payment may help you pay off your mortgage as much as three to four years early—and if you make more than one additional payment per year, it’s even faster!

Not only do you save money on interest, but you’ll be clear of having a mortgage payment at all much more quickly.

Just think about what those dollars could be used for. College tuition, vacations, a second home, or even an investment property. That one extra payment allows you to build long-term wealth.

In the end, it doesn’t matter what you do with the extra money—the point is that it’s your decision to make. Even if your goal is simply to become debt-free, those extra mortgage payments will get you there faster.

How to Make an Extra Mortgage Payment

There are multiple ways you can make extra mortgage payments. Here are three strategies that might work for you:

1. A Lump Sum Payment

Save any extra money throughout the year until it equals one extra mortgage payment. Then send it in at any point during the year, but be sure to specify that this is a principal-only payment.

If you’re not sure how to do this, contact your loan servicer for instructions.

2. Extra Dollars in Each Monthly Payment

Divide your monthly mortgage payment by 12, and then add that amount to each monthly payment.

For example, if your monthly mortgage payment is $1,200, that would be 1,200 divided by 12 months, which equals $100. That’s the extra money you would add to each monthly payment to chip away at your mortgage balance.

In this scenario, you would then increase the amount you send in for your mortgage payment to $1,300 a month ($1,200 + $100). Be sure to confirm that the extra funds will be applied to your principal loan balance.

3. Biweekly Payments

Just like you might be unaware of what a dent an extra mortgage payment can make in the life of the loan, you may not realize what a biweekly payment can do.

By simply dividing your monthly payment in half and paying that amount every other week, you’ll create an additional payment every year. That’s because the length of each month varies, but the number of weeks in a year does not.

Relying on a biweekly schedule allows you to capitalize on this discrepancy, resulting in an extra payment. After all, 26 half-payments per year is equal to 13 whole payments … giving you an extra payment and hardly noticing it!

Before You Dive In

Now, a few disclaimers. Before you decide to start making extra mortgage payments each year, you want to make sure you’re financially healthy.

If you have high-interest debt or a 401(k) that needs to be funded, any extra money may be better spent on these items.

You should also keep an emergency fund that can cover at least three months—but ideally six months—of living expenses. This will protect you in case something happens to your employment or income.

Lastly, you want to check with your loan officer to ensure that your mortgage doesn’t carry prepayment penalties. Most of these penalties apply to much larger paydowns, but you’ll want to be sure before you start sending in money.

One thing to note is that these penalties expire after a specified amount of time (usually no longer than five years), so if you have such a penalty, just sock the extra money away and make one larger payment after the penalty period expires.

Though one additional mortgage payment per year may seem like a drop in the bucket, especially early in the life of the loan, this extra money will soon add up.

Before you know it, your diligence will help you reach your goals sooner.

Ready to put that extra money toward your mortgage payment and understand the savings you could unlock? Our Preferred Rate Mortgage Advisors are here to help. Give us a call today!

Is Building a Home Right for You?

February 15, 2024

New residential construction home framing against a blue sky.

Searching for a home can be an exciting process, but this journey can quickly get frustrating if you can’t find what you’re looking for. As we all know, buying a home involves more than just the actual real estate. You have to consider the neighborhood, surrounding amenities, outdoor space, and of course the actual home and its features.

Add in competition from other buyers and/or a lack of inventory, and this exciting journey is suddenly maddening. That is, until you consider building a home.

That’s right. You don’t have to compete with anyone—or settle for anything—if you don’t want to. You can build a custom home instead.

Naturally, building a home comes with its own set of advantages and challenges. After all, if it were that easy to erect a custom home, there would be no new construction home builders, and every general contractor would be booked from here till the end of time with custom home projects.

So let’s see if this route is the right real estate choice for you.

Pros of Building a Custom Home

Build your dream home

Does the opportunity to create your dream living space sound good to you? It does to many people, which is why the custom home trend remains alive and well.

While items like light fixtures can be easily swapped out on an existing home, making big-time changes like the location of interior walls or a bathroom (or plumbing fixtures) isn’t typically feasible.

Buying an existing home can also involve compromising on either the right features or the perfect location. On the other hand, a custom home, once completed, is tailored to your exact preferences. That means there’s no remodel in your future!

The latest and greatest

Custom homes come equipped with the latest energy-efficient technologies. Building a home allows you to incorporate cutting-edge, environmentally friendly features that not only contribute to an eco-friendly lifestyle but also can save money in the long run.

Speaking of technology, do you like smart home features? Enjoy monitoring your energy usage on your phone? When starting with a brand-new build site, you have the opportunity to incorporate all the latest and greatest technology into your home from the jump.

This can encompass everything from energy-efficient appliances to plumbing and electrical. Yes, that’s right. Your lighting fixtures and plumbing fixtures can save money. Is there anything technology can’t do?

Cons of Building a Custom Home

Cost considerations

You may save money with those lighting and plumbing fixtures, but remember, you must buy them first. And have them installed. And that’s after you’ve already obtained a building site, finalized floor plans, secured building permits, installed plumbing and electrical, erected interior walls, and undergone a litany of other tasks, both large and small.

It sounds like a lot—and it can be. However, this short-term pain can be worth it for the long-term payoff that comes with a dream home, especially if there’s an opportunity to save money down the line on remodels or appliance refreshes.

Time considerations

If you didn’t get the sense from above, we’ll reiterate it here. Building a home will take time, energy, and money, even if you’ve got excellent home builders and the best general contractor in the business. Since this is a custom home, you’ll be weighing in on a lot.

It sounds fun at first, but all this decision-making can quickly spiral. This is when professionals can come in handy. A real estate agent can help you find the perfect site. A general contractor can advise on building materials and popular configurations. An interior designer can help with those pesky lighting fixtures and plumbing fixtures.

Expect the unexpected

Let’s face it, unforeseen challenges tend to come with the territory of building a home. It’s not that custom home builders are lazy or shady by any means. It’s just that unpredictability reigns supreme when you’re dealing with weather, the supply chain, building permits, a building site, and plumbing and electrical. Try to keep this in mind when you’re determining budgets and timelines.

Construction delays could also impact your current living situation. This could be a particular pain point if you have to give your landlord notice—or if you’ve sold your current home and need to move out by a certain date.

The Custom Home Building Process

Understanding the ins and outs of building a home is pivotal before deciding whether it’s right for you. Key tasks you’ll need to consider include:

Consulting with a real estate agent. Even if you’re not buying an existing house, a real estate agent can help you find the perfect build site in the perfect location. They can also help you evaluate market trends, understand property values, and offer advice on potential resale value.
Choosing experienced and reputable home builders. Research and choose a builder with a proven track record of delivering high-quality custom homes on time and on budget.
Collaborating with a reputable general contractor to ensure a smooth and successful construction process. This person will oversee the coordination of various aspects of building a home, such as securing building permits, managing subcontractors, and adhering to local building codes.
Navigating the regulatory process. Understanding and obtaining the right building permits is an important step in the construction process. Local building codes and regulations must be adhered to, and a knowledgeable general contractor can be your best friend through this aspect of building a custom home.
Securing a construction loan. Financing the actual building process of a custom home often involves obtaining a construction loan. You want to explore various loan options and understand the associated interest rates, then choose the one that aligns with your financial goals. Preferred Rate is always here to help you with this step.
Designing your dream home. We finally got to the fun part! This is where you talk among yourselves and then engage with an architect and interior designer who can help you shape the aesthetics and functionality of your custom home. From floor plans to energy-efficient lighting fixtures, plumbing, electrical layouts, and everything in between, you have the freedom to personalize every detail.
Selling (or renting) your current home. You certainly have to consider the logistics of selling or renting out your existing property before you build a house. Plus, strategically timing the sale or rental agreement can prevent a boatload of stress during the construction phase.

Building a home allows you to create a space that reflects your personal preferences and lifestyle. While it comes with its challenges (cons), the potential benefits (pros), such as a tailored living space, energy efficiency, and a fresh start, can outweigh the bad for many people.

Still, you have to think about your budget, timeline, and commitment to the building process when determining if a custom home is right for you. Consulting with professionals, including a real estate agent, home builders, a general contractor, an interior designer, and, yes, a Mortgage Advisor, is the wisest, most responsible step you can take as you begin this process.

When you get there, we’re here to help every step of the way. Feel free to contact us anytime.

Understanding a 3-2-1 Interest Rate Buydown

February 9, 2024

Higher interest rate environments can make it difficult to buy a home, but there are silver linings and workarounds. The good news is that higher interest rates often mean less competition, lower prices, and eager sellers. These sellers can be more willing to consider concessions than they would have been in a hotter market. Today you may be able to negotiate who pays for many closing costs, including mortgage discount points.

There’s an alternative to buying points, however, that homebuyers should understand. It can significantly lower the interest rate on your mortgage payment for the first several years of the mortgage. It’s called a 3-2-1 buydown, and it can help combat these higher interest rates.

What Is a 3-2-1 Buydown?

A 3-2-1 buydown temporarily lowers the interest rate on your mortgage by 3 percentage points the first year, 2 percentage points the second year, and 1 percentage point the third year. After that time, your mortgage will revert to the original rate.

This is a huge deal with interest rates at their current levels. Suppose you lock in your mortgage with an annual percentage rate (APR) at 6%. If you purchased a 3-2-1 buydown mortgage, your rate would be 3% in year one, 4% in year two, and 5% in year three, wrapping up with the agreed-upon 6% note rate for the remainder of the loan term.

This program was created to give buyers a little breathing room when higher interest rates threaten to derail their dream of homeownership. A 3 percentage point difference in your mortgage loan can make a significant impact on your monthly payment.

This program can also free up cash at a critical time after you purchase a home. Remember that a down payment, closing costs, and moving expenses can be very expensive. The money you save with temporary buydowns such as a 3-2-1 buydown can replenish the savings or emergency fund that you might have exhausted to pay for these expenses.

Your savings can also be put toward furniture purchases or repairs and upgrades for your new home. You don’t want to max out your credit cards on these items, which negatively affects your credit score. Instead, put the money you’re saving to work for you.

How Can I Use the 3-2-1 Buydown to My Advantage?

Three years is a long time in the mortgage industry. You’ve seen how quickly the daily and weekly mortgage rates can change. The 3-2-1 buydown can get you through the current interest rate hike, but it can also position you to refinance after the program ends in three years. At that time—as long as your home equity is at least 20%—you can consider refinancing to a lower permanent rate.

This is assuming that 30-year fixed-rate mortgages will be lower at that time, although no one knows what the Federal Reserve will do three years from now. If rates do increase, you’re still ahead of the game with the mortgage rate you originally locked in.

This makes a 3-2-1 temporary buydown a win-win for homebuyers!

Who Pays for a 3-2-1 Buydown?

A 3-2-1 buydown can be paid for by the seller, homebuilder, or even the mortgage lender. This is a popular concession among sellers who are eager to sell for one reason or another. It often allows them to achieve the full asking price on their home, while also incentivizing buyers to invest in real estate.

What’s the Difference Between a 3-2-1 Buydown and Buying Discount Points?

The difference between 3-2-1 temporary buydowns and discount points all comes down to rate and timing. You know you’ll get to chop entire percentage points off your interest rate during the first three years of your loan term with the 3-2-1 buydown. Permanent buydowns such as discount points, on the other hand, lower your rate by a smaller amount—generally 0.125 to 0.5 percentage points—for the entire life of the loan.

Here’s where you need to weigh your options. Naturally, that 3 percentage point APR savings is an attractive benefit, but saving half a percentage point on a 30-year fixed-rate mortgage is valuable, too. That equates to a lot of savings over time.

Buying mortgage points can be the way to go if you plan to stay in your home a long time because you want to make sure you achieve your “breakeven.” This is the point at which the money you’ve saved on the permanent interest rate discount outweighs the upfront costs you (or the seller) paid for that discount. This breakeven is generally achieved around year five of your home loan.

An additional item to consider is how comfortable you are with the interest rate you’re locking in. You want to make sure this is an interest rate you can live with after the three-year period on a 3-2-1 buydown ends because it will be your permanent mortgage rate for the remaining years of the loan. The option to refinance as long as you’ve built up enough home equity is available, but there’s no guarantee that rates will be low enough to count on that.

Taking all this into account, the 3-2-1 buydown is still a very attractive option for buyers when interest rates are high.

We know these are important decisions, which is why Preferred Rate is always here to walk you through them. We can explore the various scenarios with you, outlining how much you’d save with each option. Locate a Preferred Rate Mortgage Advisor near you to get started.

How to Set Achievable Financial Goals

January 2, 2024

Happy couple, tablet and planning for finance, budget or application for loan on fintech app in home. Black man, woman or reading on touchscreen ux with smile, financial goals and investment profit

New year, new goals, right? When it comes to personal goal-setting, creating financial goals can be one of the most meaningful things you can do for yourself and your family.

Why? Because money may not be everything, but it can buy us choices. Where we live, what we do for work (and how much we work), what hobbies we’re able to pursue, and whether we’re able to help others in our lives often have strong ties to our financial picture. So, do yourself a favor in 2024 and set some financial goals you can crush.

No matter what your financial goals, remember that a goal without a plan is just a dream. Cheesy? Yes. True? Yes.

That’s why we’re here to show you not just the value of personal goal-setting, but a road map for killing those financial goals.

All Big Dreams Start Small

Whether your goal is to travel the world or pay off student loans, chances are this goal is more complicated than simply snapping your fingers and making it so. If that were the case, it wouldn’t be part of your list of goals. It would be on a to-do list.

So let’s acknowledge upfront that some of these financial goals can seem quite lofty. After all, it takes a lot of financial planning to, say, buy a home or live debt-free. But here’s the thing: Once you set a goal, you can work backward to see how you can achieve it.

For example, let’s say you need $18,000 to pay off your debt this year. That’s $1,500 per month, or about $750 every two weeks. If you know that you can afford to set aside $650 of every paycheck toward paying back debt, that leaves $100 per month you still need to find—perhaps through scrimping, selling, or a side hustle.

Breaking your goal into a smaller time frame helps you see how you can get there, and whether it’s really achievable.

Using SMART Goals

Using the SMART system to achieve your goals is extremely powerful. It’s all about breaking these larger financial goals into bite-sized, achievable pieces.

SMART stands for specific, measurable, achievable, relevant, and time-bound. Sounds fancy, but it’s really just a practical way to turn dreams into reality. Here’s what each component means.

Specific: Define your goal as precisely as you can. Instead of saying, “I need to get out of debt,” perhaps make it, “I want to pay off my credit card debt in a year.”
Measurable: Make sure you can track your progress toward your goal. For example, “On the first of every month, I’ll send $200 to the credit card company.”
Achievable: Make sure your goal is realistic for you. And then outline exactly how you plan to save the money. For example, to save that $200, maybe you commit to stopping buying coffee outside the house and making dinner at home six days a week.
Relevant: Ensure that your financial goals align with your personal life. If you’re ultimately dreaming of homeownership, maybe your priorities are to pay down debt and work on your credit score, rather than saving up for a vacation.
Time-bound: Give yourself a deadline. Saying, “I’ll have $5,000 saved for a down payment in 12 months,” helps you think about what that means on a weekly and monthly basis. It also creates a sense of urgency.

Financial Goals That Are Worth Setting

Let’s get one thing straight: Any goal that’s worth it to you is worth setting. Want to save money so you can buy a piece of artwork? Great. Need extra cash because your living expenses are increasing? Fabulous. Just really love to see a fat number in your savings account? We totally get it.

No two goals are exactly alike because the people setting them are all different. Nevertheless, when it comes to personal goal-setting, there are some financial goals that come up more than others. Here are some ideas for you.

Creating a budget

Perhaps you’re not sure what kind of financial goals to set because you’re not really sure where your money is going. If that’s the case, getting a handle on that is a valid goal for 2024!

Here’s a simple way to get started:

List all your monthly income. List all your sources of income, including your salary, freelance work, rental income, and any other sources of money.
List all your fixed monthly expenses. Fixed expenses are regular and consistent, like rent, utilities, loan payments, and other monthly obligations. For annual fixed expenses like property insurance, divide the total number by 12.
List all your variable monthly expenses. Estimate the expenses that can vary from month to month, such as groceries, gas, clothing, entertainment, and dining out.
Start tracking your spending. Make a spreadsheet to keep track of your actual spending in all the categories you’ve listed. This will give you a clear picture of where your money is going right now.

Once you have some basic information, you can start thinking about areas where you might be able to cut back or set realistic spending limits for yourself.

If you struggle to create a budget—or to stick to one—there are also many apps you can use to keep yourself on track.

Becoming debt-free

Ah, the “D” word. Credit cards, student loans, medical bills, mortgages, car payments, you know the drill. Being debt-free is like shedding a financial weight.

If this is one of your personal goals, then a good plan can be to tackle high-interest debts first. That’s because those interest rates are costing you the most money. You may also want to look into consolidating debt or opening a credit card that offers a 0% APR on balance transfers.

Only consider the credit card option, however, if you’re positive you can control your future spending. Part of the goal of being debt-free is improving your credit score. Getting into even more credit card debt is the opposite of what you want and can prevent you from reaching your financial goals.

For more help on paying off debt, see our blog post with eight practical ideas here.

Saving money

When it comes to saving money, the old set-it-and-forget-it method can be great. An easy way to do this is to auto-allocate a specific amount of money to be transferred to your savings account once your paycheck is deposited.

This is honestly the best kind of New Year’s resolution. You can take some time in January to set things up when your motivation is high, and then you’re done for the year. Goal achieved!

The other great thing about this strategy is it can help you work toward a long-term goal like buying a house, but it’s also great for short-term financial goals like, say, Taylor Swift concert tickets.

And you don’t have to have a spending goal in mind at all! If you want to save money simply to watch your savings account grow, that’s not only an achievable goal, it’s a brilliant one!

Improving your credit score

The credit score: also known as your financial goals’ gatekeeper. We don’t have to tell you that a great credit score opens doors—namely, to the ability to make big purchases by taking on more debt. This privilege can be yours if you work on your credit score.

Remember the SMART goals here. Before you can set a specific goal, you need to know what your starting score is. (You can request a free credit report here.)

Say you have a credit score of 650, and you want to get it up to 700 by the end of the year. Here are some achievable ways to do that:

Be sure to pay your bills on time. This is crucial, so set up reminders or automatic payments if necessary.
Keep your credit card balances low. Aim to keep your credit card balances at no more than 30% of your credit limit.
Keep old accounts open, and avoid opening too many new accounts. The length of your credit history is important. So having long-standing accounts helps you, while opening a lot of new accounts is viewed as risky behavior.
Seek professional help. If you want to improve your credit score before buying a home, a Preferred Rate Mortgage Advisor may be a great resource for getting personalized help on this goal.

Saving for a down payment

One of the most common financial goals involves real estate. This might take the form of buying your first house, a vacation property or adding an investment property to your portfolio. In any case, a down payment will be needed, making this one of the great personal goals for 2024.

Start by setting a specific savings goal for your down payment, then see where you can save—and where you can earn more money—to hit this target. It’s always great to put 20% down if you want to snag better mortgage rates and avoid private mortgage insurance (PMI), but it’s not required. Consult with a Preferred Rate Mortgage Advisor to see if you qualify for down payment assistance and what a good down payment savings goal might be for you.

Saving for retirement

It’s time to play the long game. Long-term financial goals keep your eye on the prize. If your dream is to work less or retire on a beach somewhere, then now is the time to start saving for it. If you haven’t done it already, set up a retirement account, such as a 401(k) or an IRA.

As you begin to save for retirement, you’ll see what compound interest can do to the money you’re stashing away. As you watch this money grow, you can feel confident knowing you’re working toward being financially secure for the rest of your life.

Making career goals a reality

Part of being financially secure is the ability to pursue what’s important to you. When you’re not tied to the punch clock, you can achieve the career goals of your dreams.

For example, maybe you’d like to save enough money to return to school part-time to learn a new skill. Or maybe you have an idea for an entrepreneurial adventure and need startup funding. Or perhaps your goal is to be able to quit your day job entirely to turn your passion project into a career.

The first step, as always, is to write out your plan, including how much it is likely to cost and how long it will take to save for it. But whatever your goals, the ability to invest in yourself will never go out of style.

Celebrate Wins of All Sizes

A large part of personal goal-setting can involve sacrifice. You have to devote the time, money, and energy to creating specific goals. But you also need realistic, actionable plans to help get you there.

Keep in mind that the payoff doesn’t have to be years down the road when you achieve long-term financial goals. Celebrate the short-term goals as well. Did you create a plan and exceed your savings goal in the first month? That deserves some acknowledgment. Plus, recognizing your victories can keep you motivated for the long haul.

Setting achievable financial goals doesn’t have to be a buzzkill. Instead, it’s a positive step toward realizing your dreams.

And always remember, we’re here to help. Whether you’re having trouble establishing goals, aren’t sure of the best ways to save money, or want to understand the SMART goals system better, we’re happy to assist however we can.

What Is a Good Credit Score to Get a Mortgage Loan?

January 23, 2024

credit score concept on the screen of smartphone

Before you go too far down the house-hunting rabbit hole, you’ll want to ensure that you meet the credit score requirements to secure a mortgage loan. After all, this mortgage loan will allow you to purchase your dream home. And while many factors go into qualifying a good credit score is definitely one of them.

We know that getting “rated” can make you feel like you’re back in school. Like in school, however, with a little hard work, discipline, and dedication, you can improve your credit scores quickly!

So let’s jump right in, starting with the obvious.

What Is a Credit Score?

Credit scores range from 300 to 850. The Fair Isaac Corporation, also known as FICO, originally created this scale to help lenders and investors determine the creditworthiness of consumers.

A higher credit score indicates that you’re a lower-risk borrower, which could lead to a lower mortgage rate over the life of the loan. That’s because a good credit score and a strong credit report imply that you can manage your credit wisely and make timely payments. Lenders are more likely to offer you a lower interest rate mortgage loan if you are a high-credit-score (low-risk) borrower.

Other agencies have adopted a similar scale and are expected to start playing a bigger role in credit scoring in the coming years. At the end of the day, your credit score is a tool that provides a snapshot of your credit history to lenders, essentially summarizing the risk of lending to you.

What Determines Your Credit Score?

Five factors help calculate your credit score. Here’s an overview of these elements of the credit scoring model.

1. Payment history (35% of your overall score)

Paying your credit accounts on time—including credit cards, auto loans, student loans, medical bills, and any personal loans—can increase your credit score. In the same vein, late payments can negatively impact your credit score.

The credit scoring model considers the frequency and severity of these late payments. A 90-day late payment, for example, will have a larger negative impact on your credit score than a payment that’s 30 days late. Ultimately, you want to do what you can to pay your bills on time to ensure that you don’t make bad credit worse or reverse all the work you’ve done to improve your credit score.

2. Utilization rate (30% of your score)

The ratio of your credit account balances to your available credit limit is known as the utilization rate. The credit bureaus consider the utilization rate of your individual cards, as well as your overall cumulative credit limits, in this factor. A balance-to-credit-limit ratio below 30% may improve your credit scores, while a ratio above 30% may lead to bad credit.

3. Length of history (15% of your score)

The age of your credit accounts matters. What we mean is that it pays to establish a long history of credit usage and on-time payments. Credit accounts that have been open and utilized for years can improve your credit score.

Many people use their credit cards for their monthly expenses, which earns them perks and helps establish their reputation as responsible borrowers. This is a good idea only if you know you can pay your balance off every month.

With this in mind, you might think that it makes sense to open a bunch of new credit accounts, just as long as you pay off the balance at the end of the month. However, opening new credit accounts lowers the length of your credit history.

This can result in a lower credit score in the first 12 months. Once an account reaches 24 months or longer, however, it becomes a more established account. That’s when you can expect to see a positive impact.

This is also why a mortgage lender may tell potential homebuyers not to open new lines of credit when they’re preparing to buy a house. It can lower your credit score and potentially affect your debt-to-income (DTI) ratio.

4. Type of credit (10% of your score)

Also known as credit mix, credit scoring models consider what type of credit you have. Generally speaking, a mix of different credit types is more favorable than only one type of credit. Various types of credit may include a revolving credit card, an auto loan, and an installment loan, for example. This mix of credit types can produce a higher score than using revolving credit cards.

5. Inquiries (10% of your score)

When a lender pulls your credit, it is considered a “hard” inquiry. That can have a negative impact on your credit score. That means you could be dinging your score every time you apply for a new credit card or loan.

Not all inquiries negatively impact your credit, though. Pre-approval and employer inquiries that check your credit aren’t detrimental and don’t trigger calls and letters from other parties trying to sell you their latest and greatest credit card. Multiple inquiries from mortgage companies made within a 45-day window will ding your credit score only once, allowing consumers to do their research without lowering their credit score.

Of course, not all inquiries negatively impact your credit. “Soft” inquiries, such as a potential employer checking your credit, aren’t detrimental. Multiple inquiries on a single new account, such as multiple credit checks for your mortgage, ding your credit score only once, as long as these checks are all made within 45 days of one another.

What if you want to check your credit scores yourself? Any request regarding your personal credit is considered a soft inquiry and won’t count against you.

What Are the Credit Score Requirements to Buy a House?

Every mortgage lender is different. No magical number will suddenly unlock a home loan, but there are credit score ranges that lenders generally view more favorably than others.

Credit scores are typically viewed this way:

800–850: Excellent
700–799: Very good
680–699: Good
620–679: Fair
580–619: Poor
500–579: Bad
499 and lower: Very bad

A higher credit score can lead to a more favorable home loan interest rate. However, it’s important to note that credit score is just one part of the equation, and other factors such as income and DTI ratio also play a role in home loan qualification.

Each mortgage lender has its own strategy, including the level of risk they finds acceptable for a given credit product. So remember that there’s no standard “cut-off score” used by all lenders. Instead, these general ranges can tell them whether a potential borrower has a good or bad credit score or is somewhere in the middle.

Don’t forget: When it comes to qualifying for a loan, your credit score is only one part of the equation. A borrower can have a perfect 850 score, but if their income and DTI ratio don’t support the loan amount they’re requesting—say they make $30,000 a year and are looking at homes in the $800,000 range with no other liquid assets—their desired amount can still be denied.

How Do You Check Your Credit Score?

You can request a free copy of your credit report once a year from each of the three credit bureaus: TransWestern, Experian, and Equifax. You can contact these bureaus directly or go to Annual Credit Report to get all three.

This is a solid strategy if you’re looking to get a mortgage loan in the next three months. If you have some time and want to improve your credit, you can always request one report from each credit bureau every four months to track your progress.

Once your credit report is in hand, review it for accuracy. Call the credit bureaus if you find any errors or if you have questions about anything in the report.

How Do You Improve Your Credit Score?

If you find that your credit needs some work, remember the five factors determining your score and then set about optimizing your credit.

The most effective ways to do this:

Make payments on time every time.
Pay credit cards down to 30% or less of their credit limits.
Limit the number of accounts you apply for at one time.
Leave established, older accounts open even if they’re paid off.

Keep in mind, too, that you might be able to qualify for a mortgage loan even if your credit score is in the “poor” to “fair” range. That’s because credit is not the only factor considered.

Preferred Rate’s specialty pr ograms can help individuals who have previously had a short sale, pre-foreclosure, or foreclosure reenter the housing market. There is no need to count yourself out of the market just because your credit score is less than perfect. your credit score is less than perfect.

If you have questions about your credit or want to learn more about the homebuying process, click here to connect with an Preferred Rate Mortgage Advisor in your area.