10 Credit Related Home Buying Mistakes And How To Fix Them Now

Home Buying can be a Daunting Task—Especially Regarding Your Credit. Here are the Top 10 Credit Mistakes People Make When Getting Their New Home, and How You Can Avoid Them!

 

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As is with any other major life transition or project, having a successful experience when buying a new home is all about the details. There are several pitfalls one can avoid—particularly credit wise—in home buying, many of which aren’t immediately apparent. Your personal credit is a huge factor in home buying, and can often be the reason for delays, doubts or avoiding homeownership altogether. Trying to obtain a mortgage, especially if your credit isn’t the best, can raise lenders’ eyebrows. Credit shouldn’t, however, be an obstruction between you and your future home. The best way to navigate these choppy, credit-laden waters is by preparing ahead of time and using the following 10 tips to fix your credit and maximize your home buying experience!

  1. Start Saving & Preparing Early

Even if you’re not already 100% committed to home buying right new, the process begins now. Having good credit and a solid credit history will be a huge asset in areas besides homeownership. Some credit issues can also take over six months to repair or remove, so ensuring a good credit profile now, will provide for you in the future. There are three main costs to consider when saving for a new home:

  • Down Payment: The down payment requirement will depend on the type of mortgage and lender you choose. Some standard loans have in mind first-time buyers who have excellent credit. These customers may not have to put more than 3% down. However, even this small an amount can quickly add up when considering the larger picture: 3% of a $300,000 home is still $9,000. Set up a goal, and then set up automatic transfers from your checking account to your savings to start.
  • Closing costs: These are fees and expenses paid to finalize a mortgage, and typically range from 2% to 5% of the total loan amount. You can sometimes ask the seller to pay a portion of the costs, such as home inspections, and save.
  • Move-in Expenses: You will obviously need some amount of cash set aside after the home’s purchase for the actual move-in process. This can even include home repairs, furnishings and add-ons.

 

  1. Check and Monitor Your Credit 

It’s no surprise that your credit score ultimately determines whether you qualify for a mortgage and the subsequent interest rates lenders will offer you. Checking your credit score to see where you are financially positioned can help you understand what types of mortgage loans you immediately qualify for; alongside those you may want. Obtaining great terms on loans starts with checking your report yourself for free or hiring a credit repair service (such as TyeStyle Credit Solutions) to assist in this process. You can get free copies of your report from each of the three credit bureaus—Equifax, Experian, and TransUnion. A major key to staying on top of your credit profile is by being aware of what it looks like, and what that means. Your personal credit report will include information pertaining to how long you’ve had and managed your credit, your total debts, the rate of repayment and any negative remarks or late payments—all factors that mortgage lenders look at.  

  1. Improve Your Payment History

As mentioned, negative marks can potentially be lowering your credit score and could easily be fixed. The negative marks on a credit report include late payments, collections accounts, repossessions, foreclosures and bankruptcies. These all stem from the primary payment issue of a late or overdue payment. At first glance, a couple of missed payments may not seem like a huge deal—but your overall payment history actually makes up 35% of your credit score—the largest factor by far. Paying your bills on time, and paying off any accounts which are overdue, can dramatically fix your credit score to help in your home buying journey. While it’s virtually impossible to just erase late payments, the best solution is to start making timely payments going forward. This will eventually push down the late or missed payments and as the more time passes, the longer a late payment is listed on your report—and the less impact it has on your credit score. While late payments of 30 days or more eventually fall off your score, it takes 7 years…a long time to wait to buy a house! Set alerts for due dates and reminders to make your payments to avoid the hassle of a late or missed payment.

  1. Lower Your Debts and Pay off Credit Cards

 Credit utilization makes up the second-highest percentage of your credit score, at 30%. This means how much credit you’re using relative to your total available limits. Using less shows your creditors and future lenders that you can manage your debt well. The general rule of thumb is to use no more than 20-30% of your credit limit. Overusing your credit will be a bad sign that you’re not going to be able to repay your bills, and your finances may be in a volatile state. This also means, keep your credit card balances as low as possible, to avoid too much credit utilization. Pay off or pay down your bills to open up your credit profile to better opportunities. Maintaining lower balances while home buying also shows lenders that you’re not solely relying on credit cards to get by each month. Try to avoid using your cards too often while shopping for a house and use any extra available disposable income to pay these amounts down. Another good option to help your home buying experience is to preemptively keep multiple lines of credit, or several credit cards open. Having lots of available credit at high limits can drastically affect your score in a good way. Closing a card, on the other hand, will increase the portion of available credit you use compared to your total limits…which can lower your score. It’s important to note that mortgage lenders review your debt-to-income ratio when evaluating your ability to repay a loan. To stay on top of this, start by assessing what you owe, and creating a budget to lower your balances as much as you can within as reasonable a time as possible. Make sure you pay the minimum amount, at least, during each billing cycle. You can also schedule your payments earlier than the due date, to avoid missed payments, quicken the pace of repayment, and positively impact your overall diligence to responsible credit management.

  1. Fix And Dispute Errors On Your Credit Report

While you can check your credit report fairly easily on your own (or hire a third-party service to help), removing and resolving errors on your report is a whole other ball game. There’s several different kinds of errors to look out for on your credit history:

  • Incorrect accounts
  • Duplicate accounts
  • Fraudulent accounts, such as from identity theft
  • Name misspellings
  • Incorrect payment statuses
  • Information or accounts from an ex-spouse
  • Outdated information, such as negative accounts more than seven years old
  • Incorrect date of first delinquency on a collection account

The Fair Credit Reporting Act, or FCRA, allows for consumers to access a free copy of all three full credit reports from annualcreditreport.com every 12 months—and also to legally dispute any errors found on the report. File a formal dispute with the credit reporting bureau if you find one of the above-mentioned errors. You can do this on the bureaus’ websites or by writing a letter specifying each dispute on the report. Describe the facts as you see them, request a correction, and include copies of evidence or documents which prove your case. Note that it’s also likely one error will be on all three bureaus’ reports, so send a dispute letter to each credit reporting agency if you find an error. The bureau will have 30 days to investigate the claim and will send you a letter of its results. If you receive a correction or removal of a derogatory item, you can also request to have the updated report send to all past creditors who pulled your report within the last 6 months.

  1. Request Rapid Rescoring

There are some lenders who can help clients raise their score preemptively by doing a “rapid rescore”. This process is when accurate information is reported to agencies to replace inaccurate information within five business days, rather than a month—think of it like refreshing your web browser! Note, this can only be done by a lender or company specializing in rapid rescoring and has access to credit reporting company data that’s pulled from the bureaus. This is most commonly performed by mortgage lenders. Also note that only errors can be fixed. If you actually made late payments, those marks can’t be removed. However, if your credit card payment was sent on time and the report shows it as late—and you have proof showing you paid on time—rapid rescoring can provide a quick refresh to your report. Doing this yourself would take at least 30 days. It’s important to remember that rapid rescoring requires having already dealt with those bad credit issues months prior to the new home buying journey. Meaning, this can help if you’re in the middle of trying to obtain a mortgage and forgot to check your credit report. However, this negative information can only be cleared if you’ve already done the work beforehand! Rapid rescoring can clear negative information from your profile in days and raise your score but 100 points or more, depending on the severity of the errors. If you’ve also just paid off your credit card balances recently, this process can quickly update your score to reflect accurate on your file, and help you obtain lower interest rates than before.

  1. Get Prequalified

 Prequalifying online for a mortgage is an excellent way to gauge the kind of loan and how much you may qualify for before even beginning home buying. This will help you learn how to also qualify for those loans you desire, and what financial areas you can focus on to improve your chances. Mortgage prequalification online forms calculate your creditworthiness based on credit, debt, income, and assets. This calculator may also tell you:

  • Total mortgage amount
  • Monthly payment
  • The highest mortgage amount you may qualify for
  • The highest monthly mortgage payment you may qualify for

Lenders don’t verify the information you submit, and your report isn’t check either—so honesty matters!  

  1. Get a Preapproval Letter

Preapproval for a home loan is a bit different than prequalification. A lender will preapprove you for a specific loan amount under certain terms. Preapproval requires pay stubs, tax records, and other documented evidence (such as income, assets and debts) to be sent to the lender. They will also check your credit report. If you qualify for a loan, you will receive a preapproval letter indicating that you’re serious about purchasing the home and you’ve already been approved for the loan. Note that prequalifying with a lender doesn’t automatically mean preapproval for a home loan. Also, if your financial document doesn’t support the numbers you attempted to prequalify for, you may not qualify. Note that online lenders may offer lower rates than others since they have lower overhead costs than standard lenders. Also, applying for preapproval from multiple lenders to shop rates should not hurt your score, as long as you do it within 30 days.

  1. Compare Mortgage Rates and Fees

The Consumer Financial Protection Bureau recommends that you request loan estimates from the same mortgage type from multiple lenders to make comparisons on cost, interest rates and origination fees. Lenders may also offer opportunities to purchase discount points, which are fees you pay up front to lower the interest rate overall. This makes sense if you already have a surplus of cash on hand and plan to stay in the new home for a while. When comparing rates, make sure you compare in equal terms. Consider factors like:

  • Fixed rate vs. adjustable-rate mortgage
  • Fees from lenders
  • Points paid to lower an interest rate.
  • Closing costs

Get your proposed terms in writing though an LE, or loan estimate, which lenders must legally provide applicants within 3 business days of having received a loan application. This will also explain the total costs of your loan. These estimates can help you to negotiate better terms. You could perhaps make a bigger down payment and obtain a lower interest rate.

  1. Explore Mortgage Options

 There are many types of mortgages available with various down payments, interest rates and eligibility requirements. Here are the main categories: Conventional mortgages are not guaranteed by the government. Some of these loans large first-time buyers, requiring as little as 3% down. FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%. USDA loans are guaranteed by the USDA. They are for rural homebuyers and usually require little to no down payment. VA Loans are guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members and usually require no down payment.   You also have options when considering your mortgage term. Most homebuyers opt for a 30-year fixed loan, which is paid off in 30 years and has the same interest rate throughout. A 15-year loan, however, usually has a lower interest rate than a 30-year one, but the monthly payments would be higher.

 

➤ Need Funding or Building Your Business Credit? Click Here
➤ Need to Boost Your Credit Score? Click Here
➤ Connect with us on Facebook: TyeStyle Credit Solutions LLC
➤ Follow The Credit Lady on Instagram: @TyeStyleCreditLady

*Connect with us on Facebook: TyeStyle Credit Solutions LLC
*Follow The Credit Lady on Instagram: @TyeStyleCreditLady

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