Down Payment and Closing Costs - Spring 2025
- GET COUNSELED:
Your home search counselors should be a Nonprofit Housing Counselor, the Realtor and mortgage lender you’ve chosen from at least three different Realtors and lenders and your own internet research. Give weight to your final Realtor’s choice of lender, but know the choice is yours. Also, check your state, county, and local Housing Finance Agency, Department of Housing and Community Development, and Department of Housing websites for local housing and special financing programs and eligibility. I’ll walk you through doing this for Washington, D.C. in the video.
2. KNOW AND RAISE YOUR CREDIT SCORE. MANAGE DEBT-TO-INCOME RATIOS:
You can view a free copy of your credit report with any or all of the three national credit reporting agencies at AnnualCreditReport.com. This is the only Site mandated by law to disclose your free report once a year. Your actual credit score is not included, but knowing what is on your report is the first step in becoming credit-ready for homeownership. Dispute any inaccurate entries and work with your Nonprofit Housing Counselor in making your report mortgage ready. The higher your score, generally, the better terms you can find in mortgage programs.
Your Nonprofit Housing Counselor will also pull your credit report. If the score is not an Experian Fair Isaac Risk Model (FICO), Equifax Beacon, or Transunion Empirica score, it is not the score a mortgage lender will use in determining your credit risk and eligibility for mortgage approval. In addition to your Counselor’s recommendations, educate yourself on credit at MyFico.com, ConsumerFinance.gov, and the Federal Trade Commission’s (FTC) websites. Then Google the current dispute links for Experian disputes, Equifax disputes, and Transunion disputes to remove inaccurate or outdated information from your reports.
Fair Isaac and Company invented modern credit scoring, and the two federal agencies, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC), are tasked with educating and protecting credit consumers. Debt and income, along with credit history and score, are the most important factors in determining whether you qualify for a mortgage and on what terms. Make sure you know your monthly debt obligation that will be evaluated in relation to your monthly income. Generally, it’s the monthly debt that shows as revolving or fixed on your credit report with some exceptions. ConsumerFinance.gov has a good explanation of DTI ratios, and MyFico.com has a DTI calculator.
3. GET PREAPPROVED:
Get Pre-approved by three lenders. If you are a member of a Credit Union, consider them as one of your choices. Any “required lender” based on the down payment and/or closing cost assistance program your Counselor recommended should be a second consideration. For example, if you are approved for the D.C. Home Purchase Assistance Program (HPAP), there are certain lenders approved for that program. You must use one of these lenders in order to obtain assistance funds. Most downpayment and closing cost assistance programs don’t require this, but HPAP is lending a substantial sum and does their own underwriting of the the mortgage loan. Your primary bank may be the third choice, but do your research. Ask for recommendations.
You will let each or your final lender choices know that you have to have a Loan Estimate (LE) upon pre-approval. This is nonnegotiable. You cannot compare lender mortgage offerings without having the numbers contained in a Loan Estimate based upon your pre-approved mortgage terms and conditions. Your LE will determine your Maximum Sales Price, Annual Percentage Rate (APR) which is a better gauge of the true interest rate you’re receiving because it includes the impact of fees.
Now, you and your Realtor are ready to find your home. As a pre-approved buyer, your contract offer is second only to an offer from a cash buyer with no appraisal required (usually a real estate investor) in the eyes of a seller comparing buyer contracts.
The documents below are links from the video for D.C., federal, and state downpayment and closing cost assistance.