Prepare Your Credit For Home Buying

Purchasing a home is the dream of many Americans, however, it’s a huge financial commitment and a lot of preparation is required to ensure that you are ready to take this on. You’ll need to make sure you have all your financial documentation in line and often be prepared with a downpayment; your credit score is also a huge part of being able to not only qualify for a mortgage but the mortgage that’s right for you.

Often, mortgage lenders will be looking for a credit FICO score of at least 720-740; however, there are certain types of FHA loans that first time home buyers can sometimes qualify for that will only require a score of 580 or higher. While considering that last part about the lower credit score, keep in mind that it’s important to still get your score as high as possible before applying for a loan because it will open up more possibilities for you and allow you to more easily qualify for a loan that works best for you and your family.

Here, we’ll take a look at how you can prepare your credit for home buying and get yourself into your dream home sooner than later.

Pull Your Credit Report

Any time you plan on making a major purchase with a new loan, it’s important that you familiarize yourself with where your credit stands. You are your best ally when it comes to ensuring you get the best loan for your situation. Be sure to pull a recent credit report before you try to qualify for a home loan. You’ll need to know what your credit score is and if there are any mistakes that can be corrected.

Fix Problems

When you pull your report, if you see anything on there that is either a mistake from one of your lenders (like an account showing closed that isn’t, or loan amounts being listed incorrectly) now is the time to correct these problems. Fixing any issues prior to trying to secure your new mortgage loan can potentially raise your score even further. Also, be sure to double check for any potential fraudulent activity at this time.

Don’t Close Any Accounts

Now is definitely the wrong time to close any accounts you have open. The reason for this is when you close an account, even if it is paid off, it reduces the amount of credit you have available to you and can lower your credit score. It also can lessen your average account age, which can also lower your credit score.

Have a Few Different Types of Credit

The mortgage lender is going to be looking for a few different types of credit, or tradelines as they are sometimes referred. You’ll want to make sure you have a healthy combination of different loans, such as a car loan, credit card loans, or student loans.

Pay Off What You Can

If you have the means, definitely pay down or pay off any loans you can as much as you can. This not only shows responsibility to your potential new lender, but it also lowers your debt to income ratio and can dramatically increase your credit score.

Don’t Make Any Major Changes to Your Credit

The last thing you want to do when trying to be considered for a new loan is open up other lines of credit, restructure your current loans, or do any type of refinancing. These can be red flags to a potential new lender, so it’s best to leave things where they are.

Don’t Make Any Major Purchases with Credit

Definitely don’t make any new credit purchases when you are trying to secure a new mortgage loan; this is another red flag to your mortgage lender, and it also can increase your debt to income ratio and change your score around. Follow this rule up until your house is closed on and the entire purchase process is completed.