Are you considering applying for a mortgage soon or within the next year?
Want to have the best chance to get the loan you need?
If you think you’re ready-to-buy-a-home ready to buy a house and you are a part of the majority who isn’t going to drop serious money to pay for a house completely in cash, you will need to focus on your credit so you can qualify for a mortgage with a low interest rate.
Basically, all the knowledge and effort surrounding establishing and boosting your credit score all boil down to the moment you decide to apply for a mortgage. A home loan might be one of the most expensive loans you take out so it’s important to let your credit work in your favor to help you score as many breaks as possible.
A great credit score can save you thousands of dollars on your mortgage easily.
For example, if someone wants to buy a home and get a loan for $200,000 with the minimum score required to qualify of 620 or 650, they may receive a mortgage but the rate will be a bit higher. If someone else wants to borrow the same amount but has a score around 750 or better, they will usually get a much lower rate allowing less of the monthly payment to go toward interest.
Here are a few actionable ways to make sure that you boost your credit so you can take advantage of low interest rates and a better mortgage overall.
Monitor Your Credit
If you haven’t already, get into the habit of monitoring your credit score so you’ll know exactly what lenders will see when you apply for a mortgage. I would recommend signing up with MyFico.com and checking your Fico Score since it will be the closet reference of what lenders will see.
By checking and monitoring your credit score and report ahead of time, you’ll be able to highlight areas that need improvement and maybe even estimate some loan rates by utilizing free online mortgage calculators.
Fix Any Discrepancies and Disputes
If you notice any issues on your credit report, you’ll need to take action to fix them or remove any negative remarks if you can. Mortgage companies will go through your credit report with a fine tooth comb so if anything stands out to you, they will definitely notice it and ask you about it.
Errors are not common, but they are possible so if notice any mistakes that could be damaging your credit, dispute them early on.
If you have any accounts in collections, it’s best to pay the balances off and remove them from your report. If you have tons of outstanding balances or delinquent accounts, it will make you look unreliable to lenders when it comes to borrowing money and paying it back on-time.
Pay Down Your Debt
It’s best to pay down as much debt as you can before applying for a mortgage. It’s less of a hassle to just deal with a mortgage each month instead of having to make extra payments on other debt in addition to your living expenses.
Plus, lenders will evaluate your debt-to-income ratio to determine how much you can handle when it comes to a home loan. If your minimum debt payments already take up 30% of your income, it may be more difficult to convince someone to give you a mortgage and add to that debt-to-income ratio.
In addition to reducing your debt, you can also try to increase your income by securing a raise or getting a second job. Mind you, self-employment and side hustle income is great, but when you are trying to qualify for a mortgage, it will be quite difficult to count that income since it most likely won’t be consistent or guaranteed like income earned from an employer.
Most self-employment income is not considered eligible when applying for a mortgage unless you can provide documentation detailing consistent earnings for at least two years.
Lie Low and Don’t Apply for New Credit
During the mortgage application process, it’s important to refrain from making any large purchases and adding an account to your credit report. Financing a car when you are in the middle of trying to buy a house is a big NO.
Extra inquiries can lower your credit score plus, if anything changes you will possibly need to fill out more paperwork and provide more documentation to explain it.
During this time, you want your credit score to be the highest so you just need to keep doing all of the steps above and let the extra credit limits or additional accounts wait.
Have you ever applied for a mortgage before? What things do you do to help boost your credit score?