When it comes to purchasing a home there are three fundamental areas that a buyer must qualify, in order to successfully finance the purchase. These include verifiable income, adequate down payment, and good enough credit. Credit scores range from the 300’s to the 800’s. For home buying purposes lenders like to see borrowers with scores starting in the 600’s and up, depending on the program.
To make the home buying process as smooth as possible it is best to have these three pieces in order before looking at potential homes. The best way to do this is to meet with a mortgage lender before meeting with a Realtor.
How to Get Your Credit Report
Credit scores are often inaccurate and borrowers can view their report and address issues before meeting with a lender before starting the application process. To obtain a free copy of your credit report go to www.annualcreditreport.com. This website is operated by the government and is the only place where you get a copy of your credit report without signing up for a monitoring service that will begin charging fees in 30 days.
For a mortgage pull the reports from all three agencies. These are Experian, Trans Union and Equifax. Every consumer is granted one free credit report from each agency once a year. From here either print it out or input your email so you can come back and view it as needed, for 30 days.
What to Look For in the Credit Report
The credit report consists of several sections. The first section has addresses lived and places worked. While this section does not impact your score directly lenders use this as a reference point to verify data on the application.
The second section is a summary of your credit followed by details on each credit account. It is very important to verify the accuracy of this information. At the end of the report there are instructions on how to dispute inaccurate information.
Three of the biggest impacts to your credit score is on time payments, debt ratios, and collections. One late payment can drop your credit score 50 points. The older the late payment is, the less it impacts the score.
The second area of concern, which consumers can change to improve their score quickly, is the utilization ratio. This is the percentage you owe on your credit cards divided by the credit limit. Lowering that ratio will raise your score. When buying a home there is a balance between using funds for a down payment on the home, and using funds to pay down debt. Paying down credit card debt will increase the credit score and improve the debt to income ratio lenders use for loan qualification.
Collections and judgments should be paid, if possible. Often collection companies will remove the derogatory information from the report, when the debt is paid off. This can improve your score significantly. Get all promises in writing before payments are made to ensure the information will be removed.
Lastly look at inquiries. This represents the number of times you apply for credit. When seeking a mortgage it is best to have no inquiries in the last 90 days.
A credit score will determine which loan programs you qualify for and can impact the interest rate offered. Addressing any issues before finding a home will make the lending and home buying process run smoother and faster.
If you are in the market to buy a home or just considering your options, it costs nothing to learn more. Call or email Linda for a free, no-obligation, no pressure consultation – 910.409.3519, Linda@LindaMehner.com.