Atlanta Housing Source

FHA has announced sweeping changes that range from increased down payment requirement from 3.5% to 10% in certain cases, increased Mortgage Insurance Premiums (MIP) by half a percent and cutting allowed sellers contributions by half.

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So you’ve decided the time has come to purchase a home. With the real estate market in decline, this can be an opportune time to purchase a property at a price well below market value. However, you will still need to make sure your credit is in order, so you can obtain a home at the best rate possible.

Your credit score will determine whether you can qualify to purchase a home, and will have a substantial impact on the interest rate you can obtain for a mortgage loan. A low credit score may mean that you will be charged high a interest rate on your loan, and in some circumstances, it may even disqualify you from buying a house altogether.

Before you even begin shopping for a home, it is a good idea to obtain your credit report from the three main reporting agencies: Experian; Equifax; and TransUnion. Lenders may use one or all of these agencies when determining if you qualify for a loan, so it’s important to know what the information is being provided by all three agencies.

You will also want to obtain your credit score from all three agencies. This score is not always included with credit reports, so you may have to purchase this information separately. Credit scores range from 300 to 800 – generally, mortgage lenders will want to see a minimum score of 650 before they will consider a loan applicant; most prefer a score of 700 or above.

If your credit score is lower than you expected, look through your credit reports for negative items, such as late payments and charge offs. If any of these items are present, make sure that they are accurate. If not, you will need to contact the reporting agencies to file explanations stating that these items are inaccurate.

If the negative items are accurate, only time and diligence will raise your credit score. In some cases, if an extraordinary event caused you to be late on credit card or installment loan payments, the lender will accept a letter of explanation detailing why these negative events occurred. However, this is the exception rather than the rule, so don’t expect the lender to be terribly willing to accept such an explanation.

Barring an explanation letter, you will simply need to re-establish a positive credit history to raise your credit score. The older a negative item is, the less it will impact your score, so paying bills on time and keeping loans current will help you raise your score relatively quickly.

If possible, you should wait until you have raised your credit score before you seriously begin looking for a home to purchase. Although there are lenders that will provide mortgage loans to applicants with poor credit, they will charge substantially higher interest rates, which can cost you thousands of dollars over the life of the loan.

At Atlanta Housing Source, we work with a mortgage company that can provide a “what if” scenario. What if I pay this balance off? What if I rearrange my balances more equally among all my credit lines? Etc. This allows our clients to know what to work on first and how long it will take them to qualify for the loan.

As a buyer in today’s market, you are most likely looking for opportunities where you can purchase a home with substantial equity. In recent years, short sales have emerged as an attractive option for savvy buyers. However, you should be aware of both the rewards and risks of purchasing a short sale.

The main advantage of a short sale is that you can purchase a property for quite a bit less than market value. Home owners who are behind on their mortgage payments will often consider a short sale as an alternative to property foreclosure. This means that you have the opportunity to negotiate a low purchase price with the lender, so you can benefit from the reduced price when you resale the home in the future.

One of the main difficulties with a short sale is that you may experience resistance from the lender when making a purchase offer. By definition, you will offer less than the home owner owes on the mortgage, so the lender will incur a loss on the short sale. However, many times, a short sale represents a smaller financial loss than a foreclosure, so the lender may be willing to entertain your offer with a bit of persuasion.

The other big disadvantage to a short sale is the amount of time it takes for the lender to agree to a short sale. Therefore, if you are in a hurry to purchase, you are on a strict timeframe, you should really consider this before you move forward. We have seen short sales take 2-3 months to close. There are also other considerations like inspections, repairs, and seller contributions that would need to be discussed with your real estate agent for clarification if this is a good strategy for you.

Overall, a short sale poses fewer risks than other types of foreclosure or pre foreclosure sales. If you have the time and patience to devote to contacting sellers and lenders to arrange short sales, this can be a valuable and profitable investment.

As a real estate agent, we help both buyers and sellers navigate the short sale process.  

For a Guide on Selling your Home – Click here. 

For a Guide to Buying a Home – Click here.

We have help hundreds of people buy homes in Gwinnett, North Fulton, Cobb, & Forsyth counties. We offer a free information about credit and what can be done to improve your credit as well as explain the home buying process. Join us at The Holiday Inn Express on Shackleford Road in Duluth. Go to www.AtlantaHousingSource.com for more details.