Financial Fears Frustrate First-Time Home Buyers Offers Ten Tips for Timely Mortgage Approval

Mar 10, 2011, 06:00 ET from Move, Inc.

CAMPBELL, Calif., March 10, 2011 /PRNewswire/ -- Speculative fears by renters who think they can't afford the costs related to owning a home may cause many first-time home buyers to miss out on the opportunity of a generation to become homeowners this year. According to Fannie Mae's National Housing Survey released last week,(1) financial fears are the top reasons given by renters for not buying a home, followed closely by purchase and upkeep affordability.  

Yet new research by the Opinion Research Corporation and suggests consumers' knowledge of credit scores and their importance is far from perfect. Thus, renters' lack of knowledge about mortgages and the process may be one of the biggest road blocks to homeownership as a first-time buyer.

In the January 2011 study by Opinion Research Corp. for the Consumer Federation of Americas, 1000 consumers earned a D- score when they took a 22 question test on credit scores and credit in general. This credit-knowledge study found consumers answered just 60 percent of all questions correctly. Most didn't know where to find their credit scores, what constitutes a strong score, or the financial cost of a poor score.(2) Even more concerning, thirty-five percent (35%) of successful buyers recently reported they didn't know their credit score when they went house shopping, according to a national survey fielded for, a leading mortgage website offering real loans and real rates in real time operated by Move, Inc., (NASDAQ: MOVE), the leader in online real estate and operator of

"There's strong evidence that hundreds of thousands of potential home buyers have taken themselves out of the best home buying market in years before they've determined their financial position and what's involved in owning a home. Today you can easily find out where you stand and what you can afford in order to make an informed decision," said Sue Stewart, senior vice president for Move, Inc. "Buyers who prepare themselves financially before they start looking for a home will have a better chance of succeeding. If you want to be in a position to land the best mortgage that fits your needs, start early, educate yourself on your financial situation, get your documentation together and find a lender you trust."

Stewart, an accomplished mortgage professional with 20+ years of experience in residential lending, has created a checklist of ten tips to help first-time home buyers improve their chances of getting a mortgage on favorable terms.

1. Pay down debt. Before you apply for a mortgage, reduce your total debt (monthly payments on credit cards, auto loan, student loans, consumer loans) to help reduce your overall debt-to-income ratios and improve your credit score. Generally, your ratio should be 36 percent of your gross monthly income. Also, the total of your housing expenses alone, whether you are renting or buying, should not exceed 28 percent of your monthly gross income.

2. Clean up your credit. About half of all renters think they don't have good enough credit for a mortgage, but most don't really know. Obtain your free credit report from each of the three credit bureaus (Equifax, Experian and TransUnion) and carefully review them, noting all negative items. Contact creditors to correct inaccurate or outdated items. It will take time, but you need to raise your credit score to a minimum of 680 and ideally to 720 and above to qualify and to avoid being penalized with a higher rate of interest.  

3. Make no new large purchases and don't apply for new credit before or during the period that you are applying for a mortgage all the way up to closing. Lenders check credit reports at the time of an application and again right before closing. Last minute questions about your credit can cause a delay, a higher interest rate, or a denial from a lender. Wait to buy the new furniture until the house is yours.

4. Increase your down payment. This will reduce the loan-to-value ratio and increases the likelihood of getting a loan and better terms from your lender. Increasing your down payment immediately increases your equity, reduces the amount you borrow and reduces your monthly mortgage payment. If you are in need of down payment assistance, more than 4000 local and state governments offer workforce house assistance for low to medium income buyers. Some require homeownership education, which can be very helpful.  

5. Gather documents beforehand. Don't wait until the last minute and find yourself having to scramble for paperwork that supports your employment status, assets and credit. Have all the necessary documentation ready for review when you apply. Collect your income tax returns, pay stubs, bank and financial statements, and student loan paperwork. Stay on top of your documentation as time passes while your application is pending, and get updated documents, such as pay stubs, to your lender.

6. Anticipate closing costs. Closing costs, which can run 5- to 7-percent of your total transaction, add up quickly and must be paid in cash -- in addition to your down payment. Be prepared to have adequate cash on-hand. offers applicants the ability to review estimated closing cost via a good-faith estimate before making an offer on a home.

7. Determine the type of loan you need. Fixed rate? Adjustable? FHA or VA? Fifteen or 30-year term? Jumbo? Second trust? These decisions aren't just financial; they also reflect your lifestyle, your risk tolerance and the programs for which you might qualify.  Do your homework and make a decision before you go house hunting. Don't let someone talk you into a different game plan to stretch your finances to afford a particular property.  

8. Ignore "bait rates." Some mortgage advertising can be misleading with low rate promises. Beware. These "bait rates" are only for those with extraordinary credit with no contingencies. Your rate will be based on many factors: your credit, your debt-to-income and loan-to-value ratios, the size and type of your loan, where you live and the day you lock your rate, etc. You won't know what your rate will be until your application is accepted. By then, it may be too late for you to find a competitive rate from another lender. Instead, pick a lender you trust, who will work with you and helps you find the best all-around deal.

9. Negotiate a lower home sales price. Getting a better deal on your home not only works for you, it works for your lender because it lowers your loan-to-value ratio. Prices are still falling in many markets and sellers are eager to make a deal. If you're not sure what a property is worth, you can ask your Realtor for a comparative market analysis. You can also visit to check property values. It's still a buyer's market, so negotiate a deal.  

10. Have a cash reserve. A good rule of thumb is to have at least three months salary saved as a cushion before you buy. This will help with your ratios and enable you to afford and cover closing costs.  

"The fastest and easiest way to know whether or not you can afford to buy—and how much you can afford—is to visit The site was designed to help borrowers at all stages and at all levels get the information they need and experiment with different scenarios in a secure and comfortable environment that's easy to use," Stewart said.

Using's Snapshot feature, potential buyers can easily find out whether they can pre-qualify for a mortgage that fits their particular needs and financial situation, as well all the costs they will incur with buying a home, including down payments, monthly payments, closing costs, taxes and insurance. In just a few minutes, and at no cost, buyers can anonymously find out how much they can afford for a home loan based on real rates offered on a selection of real loan products. All information is anonymous; no registration or personal information is required to use the Snapshot feature.'s PreQual Plus feature provides qualified buyers with a guaranteed electronic pre-qualification letter in as little as 10 minutes. Buyers can e-mail their prequalification letter that includes actual loan terms and corresponding rates to their real estate agent or print it out themselves before touring a home. Because employs automated underwriting, buyers are a step closer to approval than they would be through other prequalification programs.  

ABOUT MORTGAGEMATCH.COM is operated by Move, Inc. (NASDAQ: MOVE). Through a partnership with a national mortgage banker d/b/a Mortgage Match, a variety of quality loan products are offered to home buyers interested in financing the purchase of a property or current homeowners interested in refinancing their current mortgage. Consumers can access such products at


Move, Inc. (NASDAQ: MOVE) is the leader in online real estate with 12.98 million(4) monthly visitors to its online network of websites. Move, Inc. operates:, a leading destination for information on new homes and rental listings, moving, home and garden and home finance;, the official website of the National Association of REALTORS®;,; SeniorHousingNet; ListHub; and TOP PRODUCER Systems. Move, Inc. is based in Campbell, California

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(1) "Fannie Mae's Latest National Housing Survey Shows Key Changes in Americans' Attitudes Toward Housing and the Economy Over the Last Year. " Fannie Mae Press Release.  February 28, 2011.

(2) "New National Survey Reveals What Consumers Know and Don't Know About Changing Credit Score Marketplace."  Consumer Federation of America Press Release.  February 28, 2011.

(3) "Survey Shows Access to Mortgages Seen as a Serious National Problem."  Move, Inc. Press Release.  February 8, 2011.

(4) comScore media Metric, January 2011

SOURCE Move, Inc.