We can help you prepare to buy a home

The holidays are typically not when people think about buying a home. But, now that we are plunging into a shiny new year with all its potential, we thought it was the perfect time to talk about how we can help you prepare for home financing.

Last month, we introduced Evelyn Santiago, our new certified housing counselor at NeighborWorks of Grays Harbor. Evelyn is ready to provide help to Grays Harbor residents in English and Spanish, allowing our nonprofit organization to serve more members of our community. We talked to her again for this column, and she shared a few tips on preparing to become a homeowner.

What kind of home is needed?

People think of buying a home for a reason. That is, perhaps they want to move to the country, or they need more bedrooms to accommodate their growing household, or perhaps a job change means it’s time to move communities.

It’s important to list your needs and wants for a new house, Evelyn said.

“You need to determine what’s good for you and what your family needs,” she said. “Do you need two or three bedrooms? Do you need a shed, a garage, or want a big yard? Those are just a few points to decide on ahead of time.”

Home buyer pre-qualification

However, once that is determined, it’s important not to jump right into looking for houses. And, that’s where most people want to start, by seeing what’s out there. However, before beginning to house hunt, it’s good to become pre-qualified for a loan, Evelyn said. But please note, there is a difference between being “pre-qualified” and “pre-approved” when talking about loans.

In fact, many realtors, don’t like to work with people who are simply curious “Lookie-Loos.”  

“Having a pre-approval letter from a lending institution in hand shows the real estate agent that the client isn’t going to waste their time. It shows they are ready to go,” said Evelyn.

“A pre-approval letter is from a lender and usually on their letterhead. It says that lender has verified that person’s income, credit score and tax returns and has pre-approved a mortgage for a certain amount,” she explained.

But let’s start with just checking to see if you will qualify for a loan first. Pre-qualification is the first step. We will talk about pre-approval in an upcoming article.

Financial readiness

At NeighborWorks we can help you – free of charge – figure out if you are financially ready to take on a mortgage. In fact, that’s a big part of Evelyn’s work. When lenders at a financial institution, such as a bank or credit union loan money, they want to know that the risk they’re taking is reasonable and that they will get the mortgage payments on time.

They look at three major things to determine if someone is financially prepared to pay the cost of purchasing and managing the overhead costs of a new home – employment, credit and savings.

Employment – Time on the job is important because it shows stability of income to repay a loan. At least two years at the same job or in the same line of work – more if self-employed – is expected. Pay stubs and the last two years of income tax returns will verify this, as well as how much was earned.

Credit – Showing that you pay your bills in a timely manner and that your credit cards aren’t maxed out, demonstrates to a lender that you are a responsible borrower (and therefore more likely to pay off your loan). We recommend that the credit score of each borrower be 640 or above, although each loan program or lender may have their own minimum.

Also, potential lenders want to know how much money you owe others, so we recommend postponing other large purchases until after you buy a new house. Total debts and monthly payments are used in calculating loan payment qualifications. Student debt and loan payments also can affect this ratio.

“Having a big loan payment amount for something like a new car or boat affects everything,” said Evelyn. “It will negatively affect their debt ratio and that’s not going to benefit them in any way as far as securing a home loan.”

Any bankruptcy filings need to be resolved and at least seven years old to not affect the credit application. Likewise, any open collection accounts will need to be paid.

Savings – In addition to a steady income and good credit, having a stash of cash in the bank is usually necessary to qualify for a loan. That cash is needed for expenses like the down payment and closing costs and will be verified by the lender ahead of time.

Some people keep their cash at home, but “mattress savings” need to be deposited in a bank account for at least a couple of months to prove that the prospective homebuyer is able to make the down payment and come up with the closing costs,” Evelyn said. “Sometimes deals will break down because the buyer has no money to put down. That’s why many lenders like to check for savings ahead of time.”

“We suggest you pay as much toward the down payment as you can afford,” she said. “That will help reduce the monthly house payment and cut down on how much interest is paid.” 

Evelyn can help future homeowners figure out how to document regular employment, how much to save, and how to improve their credit by deciding which bills to pay off first in preparation for becoming financially ready to become a homeowner.

Home Buyer Education

In additional to financial fitness, learning about the home-buying process is critical to success. Evelyn strongly encourages prospective home buyers to take the eHOME online home buying course. The course is $50 and can be accessed through the NeighborWorks website.

It explains everything about the home-buying process, including the different services and fees involved, as well as the need for title insurance and the breakdown of closing costs.

In fact, some first-time home buyer loans require the completion of this course before the loan can go through. Be sure to ask your lender!

More information in our next column

We have more to share with you about the home-buying process, but will save it for next month’s column. We will cover the next step of “pre-approval” and the importance of preparing your current home for sale as well as planning for how much your new home may cost to run and maintain.

To talk to Evelyn, call between 8 a.m. and 4 p.m. Monday through Thursday at (360) 533-7828 or e-mail her at ESantiago@aberdeen-nhs.com to make an appointment.

Eric Bjella is the executive director of NeighborWorks of Grays Harbor; a nonprofit organization committed to creating safe and affordable housing opportunities for all residents of Grays Harbor County. For questions about home repair, housing counseling, homebuyer education and financing, call 360-533-7828, listen to the extension picks that will best help you and leave a callback name and