Credit 101 When Buying a Home

Credit 101 When Looking To Purchase A Home

Purchasing a home is an in depth process that begins well before you are out looking for homes. It is vital that you know your credit situation and make efforts to maintain your credit especially during the home buying process. When you are actively looking to buy a home it is imperative that you do not do the following without consulting your realtor or lender:

-Purchase a car

 -Make any large purchases (furniture)

-Pay off and close credit cards with long histories

Essentially do not make any moves that would drop your credit score while you are looking to buy a home. It can make the difference of a lower or higher interest rate and sometimes ruin your chances of obtaining loan approval or financing.

Know Your Credit Situation We often avoid pulling our credit score or fail to monitor it. Now more than ever with the lending industry creating stricter guidelines for home loans, credit scores are vital to the success of obtaining a loan. According to Jocelyn Predovich, a senior mortgage specialist, I work closely with, the days of getting a 100% financing without documenting income, having a 580 credit score and $20 in the bank are over. “With a solid credit history of “on time” payments, a 620+credit score, documented steady income and minimum debt- 100% financing is still possible,” says Predovich. For those self employed borrowers who cannot verify income through tax returns, you must have a down payment of at least 10% and a credit score of at least 660. We have identified a few tips to improve your credit scores. Make sure you pull your credit score semi-annually by a reputable bureau such as TransUnion, Experian or Equifax. If there are errors or items that you are not sure about on the report contact the creditor.

Know Your Balances Be conscious of the available maximum balance on your cards. If possible never use more than 75% of the available balance. “Once you have a balance over 75% of the overall limit the credit bureaus view this as being maxed out, demonstrating you are a risky spender, dropping your credit score,” said Predovich. She added, “Never use more than your available balance.” Whether you are carrying a balance on a card or have it paid off fully, do not cancel the card. If you are going to cancel a card only cancel cards with less than 1 year of history.

Establishing Credit If you need to establish good credit or have not established any credit via financing a car, obtaining a loan or having a credit card there are still a few loan programs available for people with little or no credit. “One of the ways to establish credit would be to become an authorized user on a family member’s credit account. “Make sure the person you are “teaming up” with has a good credit history,” stated Predovich. Some credit card companies will allow you to establish credit by starting you off with a self funded savings account. Eliminate All Late Payments Paying a bill or payment late will adversely affect your credit even if it is your first time being late. You can contact the creditor that reports the late payments and request a good faith adjustment that removes the late payments reported on your account. Predovich also encourages you to pay off any past due amounts or collections but only if they are under 2 years old.

To view your credit report you can visit AnnualCreditReport.com, the only federally-sanctioned and cost-free service. For more information on credit or for any questions please contact me at 720-210-7377 or Jocelyn Predovich at 303-325-3578.