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Let’s Get Ready

ONE YEAR OUT OR ASAP

Pull Your Credit Report

If there are errors on your reports, you may pay a higher interest rate on your mortgage.  You might have issues getting a loan.  The three major credit bureaus (Equifax, Experion, and TransUnion) offer free reports from AnnualCreditReport.com.  Scan for suspicious activity, collection accounts for debts you don’t owe, and negative marks (other than bankruptcy) that are older than 7 years.

Find Your FICO Credit Scores

Your credit scores are three-digit numbers used to measure your creditworthiness.  They help determine the rates and terms for your loan.  While there are hundreds of different credit-scoring formulas, the majority of lenders use FICO.

Keep a Close Eye on your Credit

Because of how important your credit and credit scores will be in buying a home, keep a close eye on your credit.

Attack Your Debt

Try to eradicate bad debt such as credit-card balances and payday loans, which signal that you are living beyond your means.  Getting any overspending problems fixed before you buy a home is key.

Save your Money!

Cut back on your luxury expenses and put as much money aside as possible.  Think about your dream of home ownership.  Ideally, try to have at least 5% down payment, but putting down 10% will give you even more financing options.

Switch to Automatic Bill Pay

A single 30-day late payment can knock 100 points off your score, so be sure every bill gets paid when it’s due.  If you don’t have a reliable bill-paying system, consider using automatic debits so payments come directly from your checking account, or use an online bill-paying system’s recurring payment feature.

 

6 MONTHS OUT

Research Home Ownership costs

Remember that some ownership not only includes your mortgage, it also involves property taxes, home insurance, and perhaps homeowners or condo-association fees.

Hone Your Savings Strategy

A bigger down payment could result in a larger home or a lower mortgage payment.  Build up your emergency fund for unexpected home expenses.

 

3 MONTHS OUT

Reduce Your Credit Utilization

Remember: less is better, at least when it comes to the FICO scoring formula.  It’s sensitive to how much of your available limits you’re currently using on your credit cards and other revolving lines of credit.  Even if you pay your balances in full every month, the balance that shows on your most recent statement is the one used in the formula.  Keep that balance below 30%, or even lower.

 

2 MONTHS OUT

Look at Mortgage Rates

Checking your FICO credit scores doesn’t personally lower your score, so order a fresh set and speak to a few mortgage lenders about rates.  Don’t apply yet or give permission for your credit to be pulled, just get a feel for what you can expect.

Find Your Mortgage Lender

As your Realtor, I can provide you with recommendations for several lenders that can help you with your Mortgage options.

Understand the Effects of Mortgage Shopping on Your Credit Score

Everyone wants to get the best loan rate and terms possible.  Each time a lender checks your credit, a “hard inquiry” appears on your credit report and lowers your score slightly.  The good news is that the FICO scoring formula counts all mortgage-related inquiries within a specified period as one, since it is expected that you may be speaking with more than one lender. It is important to do your serious mortgage shopping in a fairly concentrated period of time, and it’s best to choose the lender you plan to work with before going under contract so they can begin working your loan file right away.

Obtain Pre-Approval From Your Lenders

Pre-approval, in which a lender gives a commitment to make you a loan, is different and more valuable to sellers than pre-qualification, which gives you just an idea of an affordable mortgage amount without any commitment.  You are not obligated to get a loan from the lender that offers you a pre-approval letter.  Even though a pre-approval involves a hard credit inquiry, the small potential ding on your credit is worth it because you’ll be in a stronger position with sellers, as many sellers won’t consider an offer without a pre-approval.