Buying a new Metro Detroit home can be a hectic experience. Sure, it’s exciting, but it can be a whirlwind of stress. From looking at houses to checking your credit, there are many tasks involved in buying a new home. On the other hand, you may glide through the ordeal effortlessly. However, a smooth transaction awaits when you prepare with some home-buying "best practices," courtesy of the best Detroit real estate agents!
All About Credit Scores—and How They Affect a Home Purchase
One thing that can put the brakes on your house-buying efforts is a poor credit score.
This isn’t the only thing that banks will look at, but your credit score will definitely play a role. The better the credit score you have, the more likely you are to be able to get the amount of loan you need or want, and you will be able to get a much better interest rate, too!
So, what credit score is needed to buy that Metro Detroit home you have your eye on? Different lenders have different requirements, and various types of loans have varying qualifications, as well. However, there are baseline requirements or minimum standard you will need to meet with each loan. Let’s take a look at each type:
- FHA loans require 580+
- USDA loans require 640+
- VA loans require 620+
- Conventional loans require 620+
If your credit score is lower than the minimum requirement, then you can work to bring it up.
- Make sure there aren't any errors on the report.
- Pay down one of your debts, so that your total credit utilization rate is low.
- Make sure you continue paying all your debts promptly. In time, your credit score will increase!
Lenders don’t only look at your credit score when deciding to loan you money for a new home. They also consider your debt-to-income ratio, which means how much debt you have compared to how much your income is. They usually want the ratio to be 36% or lower for a home loan. Lenders will also look at the security of your job: if you’ve been there a long time, it’s more secure.
Home Buying Best Practices
Along with having a qualifying credit score, you can enhance your chances of making a successful purchase with these tips.
1. Save for Your down Payment
Having a sizeable down payment for your new Metro Detroit home will give you the boost you need to negotiate a reasonable interest rate. It may even help you offset an average credit score. If this is not possible, then the next best option is to consider going with a loan that doesn’t require large down payments such as FHA or VA loans. Check to see which one, if any, you qualify for.
2. Check out Michigan Perks for First-Time Home Buyers
The Michigan State Housing Development Authority has a couple of first-time homebuyer programs that are designed to assist people in purchasing their home. Not only does the state offer help with two loan programs, but they also support people with a down payment program. This is an excellent opportunity for those who qualify!
3. Put Your Credit Activity on Hold
When you decide to take the plunge and purchase a home in Detroit, you’ll want to put all your other purchasing power towards the house. It’s not the time to go out and buy a new vehicle or run up your credit card debt. If you do that, your credit utilization and your debt-to-income ratios will spike. Remember, lenders want both of those percentages to be low.
4. Keep Your Credit in Stellar Shape
If you are in the beginning stages of buying a house, you can take steps to increase your credit. Maybe you don’t have much credit; now is the time to establish and build your credit into a strong foundation. Make timely payments on the debts you have and work to lower the credit utilization ratio. The credit utilization ratio is simply the amount of credit you are utilizing versus the amount you have available to you altogether.
5. Understand Your Mortgage—and Prepare for It!
Research the different mortgages available to you. From the FHA to Conventional loans, you want to ensure you have the one that will suit you best. It’s also essential to understand what all goes into a mortgage. Not every dollar will go towards your principal. Most lenders will include your property taxes and insurance in the mortgage payment, as well. So, as you plan for how much of a house you can afford, don’t forget to add those two “extras!"
Now that you’re ready to dive into house hunting, connect with a real estate pro who has extensive experience with Detroit properties. The MARK Z. realty experts are prepared to help you take the final step towards purchasing your new home! We know the Metro Detroit realty market so well, we guarantee: we either sell your home, or we buy it!