If one of your future goals is to purchase a home, it’s never too early to start preparing yourself financially. One of the major factors that goes into getting approved for a home mortgage is your credit score and credit history. All lenders will look at your credit worthiness to determine how much they will lend to you. The following are steps you can start taking now to prepare your credit for buying a home in the future.
1. Check and update your credit report: Consumers are guaranteed at least one free credit report a year; get a copy of yours to see where you stand. If you find errors, you can contact the creditor or the bureaus to address any invalid information.
2. Make payments on time: Your credit report shows your current creditors and your payment history with them. Payment histories are one of the most important components of your credit score, so it’s important to maintain on-time payments with all of your creditors.
3. Pay down high accounts: Making payments on time is only one aspect of credit worthiness. The amount of outstanding debt, and the percentage of your available credit that is outstanding, are equally important. If you have credit cards that have been maxed out that can affect your credit score, whether you’re making payments on time or not. Focus on paying down accounts with the highest percentage of credit used. Getting these outstanding balances below 25% of the available credit line can improve your credit score.
4. Take care of existing liens or judgments: If you have any liens or judgments, you may want to pay them off or try to settle them before you apply for a home loan. Lenders will consider you if you have an outstanding lien or judgment, however, they’ll likely require it be satisfied before the loan is finalized. Therefore, avoid the headache and go ahead and take care of those in advance.
5. Avoid opening new accounts: New accounts can be a red flag – lenders want to see a history of payments, and new accounts mean you have a new need for credit. However, if you don’t have credit yet, this is an exception. A couple of credit cards with low balances and on time payments often times can appear better than no credit cards at all. But, avoid making a big purchase like a car just before applying for a home loan – a recent large purchase can alter your overall financial picture.
6. Talk to a lender and get pre-qualified now: This will help you understand how much home you can afford, and what steps you can take to increase your purchasing power. If there are any issues with your credit history or your credit score, the lender may be able to show you what you can do to improve your situation.
Taking steps in advance to improve your credit score will help ensure lower rates and better terms which may mean huge savings for you during the life of your home loan. When you’re ready to explore your home loan options, contact me and I can recommend great local mortgage people. Is your credit not great, but not sure where to start? Some situations can be more complicated and you may want professional help. Garranteed Solutions is local company with a great reputation for helping people repair credit. Check out their website for tons of good info http://garranteedsolutions.com/.
Originally posted by Beazer Homes 11/3/14; Rewritten and edited by Lisa VanderLoo 11/6/14
Great info on everything real estate.