Whether you’re purchasing your first home or refinancing a mortgage, you should know that a lot has changed with home mortgage loans in the past several years. It’s more important than ever to make sure that your credit is in top shape before you apply for a mortgage, or even look at houses.
Rates are really low right now, so it is a great time to secure an awesome mortgage on your next home. But, do yourself a favor and streamline the process by being mortgage ready. These five tips will help you build a great credit score and unlock the keys to your next home, as well as your future.
1. Check your credit report – Because the Federal Trade Commission (FTC) says that one in five credit reports has serious errors, your very first step should be to review these credit reports. If you find an error, like a payment reported late that really was on time, dispute it through the credit reporting agency’s website. If an adjustment is made to your credit report, that single action could raise your score 60 to 100 points. Common errors you may find include inaccurate credit limits, accounts that do not belong to you and inaccurate account statuses. Get those errors corrected!
2. Pay down your credit card debt – Paying down your credit card balances is a surefire way to increase your credit scores. In fact, aiming for balances that are less than 30 percent of your available credit will have a huge effect on your credit. Of course, paying off installment loans helps your scores, but not as much as minimizing your revolving balances. Furthermore, the less debt you have when you apply for your mortgage, the better. So this is a double-whammy tip!
3. Pay your bills on time, every time – When applying for a home loan, you need to show the lenders that you’re willing and able to handle your responsibilities. One of the best ways to do that is to always pay your debts on time. People can and do get loans, including FHA mortgage loans, with small blips on their credit. However, you will have to explain what the problem was that caused you to miss a payment and how you have corrected it. Using bill payment reminders or automatic payment withdrawals can be helpful if you have trouble remembering when your payments are due.
4. You can get a loan with limited credit – Limited credit can be an issue, but it is one that you can overcome when applying for a mortgage. Have you paid rent for a number of years, or paid utility bills, insurance or phone bills religiously? These nontraditional credit sources can help to form the basis for your approval, and your mortgage banker can help you with this.
5. Don’t add any new credit accounts – When you are in the process of buying or refinancing a home, do not take out any new loans or open any new credit card accounts. Wait until after you have closed on your home loan to make large purchases. Added inquiries throw up red flags to the lender, especially if there are several. Additionally, any new credit will be budgeted in and can affect the amount you are able to borrow. So, hold off on buying new furniture until you have a house to put it in.
Follow these tips and you should be in good financial shape when you find the house you want to call home. Contact Bluefire Mortgage and get pre-approved; offers that include a pre-approval have a better chance of being accepted.