Like many Americans, this is the year you plan to buy a house. But while you’ve been saving your pennies, checking out neighborhoods you are interested in living in and searching houses online, you may not have considered the important role your credit score plays in your ability to secure a loan. For example, a conventional mortgage loan typically requires an average FICO score of at least 720, and people with scores at 580 may qualify for an FHA loan.
Here’s some information from a realtor in Alpine, TX for how to prepare your credit for buying a home:
- Review your credit report: The first thing you need to do is check your credit report for any issues a few months before you plan to apply for a mortgage. For those who pay their bills on time, checking your credit for mistakes two to three months in advance should suffice. However, if you know you have late payments or other negative things that stand out on any of your accounts, you might want to start your review six to nine months in advance to allow enough time to remedy any issues.
- Take care of inaccuracies: You may look at your credit report and find errors like an account you didn’t open, an account that’s not yours or an “unpaid item” that is actually paid off. File a dispute with the credit reporting agency immediately. It’s not unusual for someone to discover an inaccuracy on their credit report, so be thorough.
- Have several tradelines: You will need at least three tradelines—such as credit cards, car loans, student loans, etc.—that have been active within the past 12 to 24 months to apply for a conventional loan; you need two tradelines for an FHA loan. Talk to you realtor about opening additional tradelines if you need them.
- Don’t close old credit: Don’t close older credit cards—they can actually help boost your credit score. To keep old cards active, use them every few months and pay them off in full.
- Don’t open new credit: New credit, meanwhile, can temporarily lower your score. For this reason, avoid opening new credit lines at least six months out from applying for a mortgage.
- Avoid using credit: You’re excited about purchasing a house, and now you’re in escrow. This may lead you to buy new things for your new house on credit—like furniture, appliances and more—but you should avoid buying on credit (or applying for other loans, like a car loan) before closing. Being in escrow doesn’t mean you’ve got the house; in fact, if you have a debt utilization ratio above 30 percent right before closing, this could disqualify your home loan.
- Leave money accounts alone: A mortgage lender will ask you to provide several months of bank statements, so don’t close accounts or make large money transfers. To create less paperwork, leave accounts as stable as possible for at least three months.
Are you in the market for a realtor in Alpine, TX? Then call Carpenter Real Estate today!