Collins: How can home buyers prepare themselves to get the best rates?

With the news of interest rate cuts and dropping mortgage rates, there is a renewed interest in home purchasing. However, it is still an incredibly competitive market, so you need to be prepared.

I asked Michael Gordon, broker and co-owner of E3 Realty & Loans, what a potential buyer should do to ensure they have the highest possible credit score.

“Lenders are looking for two years or more of paying on time without late payments,” Gordon said. “It’s also critical to keep credit card balances low. Try to keep balances at 20-30% of your limit and pay them off before their due date each month. Ideally, you want a credit score of 700 or more, but lenders will still collaborate with you even if you have a credit score closer to 640.”

Debt is the biggest obstacle to achieving your desired credit score and financial goals. Gordon recommends doing a soft pull of your credit score if you are actively trying to increase it. A soft pull can also be used for preapproval purposes. If a lender does a hard pull of your credit, it could cause your credit score to drop 8-20 points for up to 90 days. This is another reason you do not want to open new credit cards or purchase a vehicle before getting preapproved on your loan. Sixty days prior you should reduce your spending.

Becoming educated by a realtor and prequalified by a lender is critical to compete in this housing market. Make sure you take your time in choosing your realtor. You are looking for a skilled partner who is willing to be patient and share their knowledge with you. There is no cost to consult with a great realtor and mortgage professional to find out where you stand today. Interview at least three realtors and keep looking until you find the one that aligns with your values. Be prepared to ask them a bunch of questions to see if they are a good match for you. It’s never too soon to start the education process.

Once you know what you can afford, Gordon said it’s important to have a purchasing strategy.

“Sometimes first-time home buyers are drawn to homes that are at the top of their price range. This presents a couple of issues,” he said. “The first is if you get into a competitive bidding situation and you are already at the top range of what you can afford. A second issue arises if the home you have an offer on does not appraise at the value of your offer and if that offer was a non-contingent offer, you are responsible for bringing in the extra cash to make up the difference. If you cannot afford to make up that difference and you must back out of the deal, your deposit may be in jeopardy. Instead, look for properties at a lower price so you have room to compete if a bidding war ensues.”

San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. Contact Neil at [email protected].