Review your credit, and take steps as needed to elevate to “Mortgage-Ready Status”
Long before you start your search for your right (or right NOW!) home, it’s always advised to do a deep dive into your current credit status.
From a seasoned Fidelity Direct Mortgage Loan Advisor:
"I've seen many cases where I'm pre-approving a client to purchase a home and we discover errors and inaccuracies on their credit report, whereby delaying the process considerably and impacting their ability to qualify for a loan at all. Many times, these are incorrect and could have been addressed much sooner with a self-review of credit beforehand. The credit bureaus directly are the best source of information, and all should know that a free credit report from each bureau is available to consumers once per year. All potential homebuyers should be taking advantage of this."
Once you've confirmed your credit reporting is accurate, take the requisite steps to improve your credit score if needed. The quickest way to boost your credit score is to pay down credit card balances and continue to pay your bills on time. It is recommended to keep your credit card balances at 30% or below your total credit limit. Low credit use shows lenders you can manage credit responsibly.
It’s always best to consult with an experienced Loan Advisor to further coach you on other ways to enhance your existing credit profile.
Once Mortgage-Ready, Carefully Consider All Your Loan Options
There is no “cookie-cutter” or “one-size-fits-all” approach to the mortgage loan type that is right for you. Your ideal loan will depend on many different factors, including your credit score, funds available for down payment and closing costs, and property type.
For example, if you've ever served in the military or are an active duty servicemember, a VA (Veteran’s Affairs) loan might be the best option, offering you a no-down-payment option and competitive interest rate.
If you’re still working on your credit and it’s not “perfect”, then an FHA loan could provide you the best path towards homeownership, with down payments as low as 3.5%.
According to another experienced Fidelity Direct Mortgage Loan Advisor:
“Don’t always assume that a 30-Year Fixed-Rate mortgage is your best option. With the ever-change landscape in interest rates, and many homeowners being more transient than before, don’t’ count out ARMs (Adjustable Rate Mortgages), especially at higher price points. Interest-only options could be a good choice as well, ultimately depending on your goals and your 5-year plan. Always consult with an experienced loan advisor prior to making a decision.”
Don’t Get Caught In The “Rates and Points” Trap
This is arguably the most important factor to consider when shopping for a mortgage, and one of the most confusing as well.
Why? Firstly, mortgage rates you might see advertised online do not tell all the facts, or at least, they are not always readily available. For instance, you might find a rate online that seems too good to be true, and it is, because there are likely discount points (prepaid interest as a percentage of the loan amount) that you will never recoup, depending upon how long you will stay in the mortgage loan.
Also, rates and points do not live in a vacuum. In other words, today’s interest rates and points do not factor in the cost of waiting to buy until a lower rate becomes available. Today’s prices at a higher interest rate will almost always be more affordable than tomorrow’s prices at a lower interest rate.
It’s always best to consult with a local and knowledgeable Loan Advisor to ensure you understand entirely what the perfect “rates and points” solution is for you, as well as to fully recognize the “cost of waiting” for a lower rate. More often than not, it’s going to cost more in the long run.
The Bottom Line
While rates are ultimately trending downwards, industry experts advise us to focus on what works right now (The “Right NOW Home”), rather than waiting for the “perfect” time to buy the “perfect” home. Hint: It doesn’t exist. Billionaire real estate investor Warren Buffett’s best advice? “Don’t ever try to time the market.”
A word of caution about attempting to time the market: While waiting for that perfect recipe of price and rate, you’re likely going to miss an opportunity and end up against more competition at higher prices.
So, what's your next move to finding the best mortgage options, right now?
Start by reviewing your credit, consulting with a local Mortgage Advisor to discuss ways to improve your credit as needed, and decide on the best mortgage program and rates-and-points combination for your specific situation. Be sure to discuss all of your different options to get a full picture of rates, fees, costs and terms. The best solution for you is the one that fits your overall financial situation and homeownership goals.