First-Time Home Buyer Credit Repair
Being able to afford a house payment and saving money for a down payment aren't the only requirements for getting a first-time home loan. Some first-timers underestimate the importance of a good credit history. Lenders factor in credit scores and history when reviewing applications and when deciding the interest rate on the loan.
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Check Your Score
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Taking time to check your credit score provides insight as to whether now is the best time to apply for a home loan. The interest rate your mortgage lender offers you plays a role in the house payment, and because buying a home can significantly increase monthly expenses, it's wise to keep your house payment as low as possible. The Home Loan Learning Center recommends a score 680 or higher when applying for a mortgage, but acquiring a score in the mid-700s or higher helps you get the lowest rate on the mortgage. Myfico.com provides access to credit scores for a fee.
Managing Existing Bills
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Expect your mortgage lender to conduct a thorough examination of your present bill-paying habits before issuing an approval for a first-time mortgage loan. Lenders put up a lot of cash, and before giving you funds to buy a home, they will determine your ability to not only repay the loan, but your willingness to repay the loan. Lenders determine willingness by checking your credit report and looking for negative items such as frequent late payments, collection accounts and charge-offs.
Controlling Debt
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The less you owe when applying for a first-time mortgage, the easier it becomes to qualify for a specific loan amount. Owing several thousands of dollars on credit cards and having multiple installment loans increase your debt-to-income ratio. This can drastically reduce your purchasing power, and since high debts lower your credit score, this can also impact your interest rate on the mortgage loan. Pay down your debts and avoid applying for new credit accounts before buying a home.
Identifying Credit Mistakes
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Go to Annual Credit Report and check your credit history for mistakes. Mortgage lenders read your credit file before approving your mortgage request. Negative items, regardless of legitimacy, can hurt your mortgage approval chances. Annual Credit Report issues ever consumer one free report from each of three reporting agencies once a year. Get mistakes removed from your report by calling your creditors or filing a complaint with the bureaus.
Older Debts
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Because collection accounts and charge-offs can affect mortgage loan approval, take action before submitting an application and pay off these old debts. These types of accounts stay on your report for seven years, but paying or satisfying these debts shows a willingness to repay your financial obligations, and this can look good from a lender's standpoint.
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