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5 Credit Mistakes To Avoid As A Homebuyer
You've been renting for a while and, as your friends begin buying homes of their own, you decide that you too might be ready to invest in a place of your own. You've had a stable job for some time, decent income, and you're sick of wasting money on rent. Buying a house may be the next step for you, but before you become an active homebuyer, you will want to give these 5 items some consideration.
1. Not knowing what's in your credit file. The last thing you want is a surprise when you're applying for a mortgage. Nothing on your credit should surprise you. If you have any collections accounts or bad info in your file, now is the time to fix that. A lot of times, an account goes to collections because of a lack of communication or awareness. Many people just don't know they had an outstanding balance sent to collections. Take a few minutes to run a free credit report on any of the free credit sites like Credit Karma or FreeCreditReport.com. Many credit cards also offer a free FICO score. You will want to ensure any negative marks on your credit are resolved before applying for a mortgage as this will seriously impact your qualification and jack up your interest rate.
2. Applying for mortgages over a long period of time. While you will want to pull your credit 6 months to a year before you're going to seriously start looking to buy, you don't want to have multiple lenders pulling your credit every few months. Do all your mortgage shopping within a 14-45 day window. Ask you lender how long credit inquiries will remain grouped and only counted as a single pull. Multiple hard pulls on your credit will not only negatively affect your credit, but it will also ensure you don't move forward to purchase.
3. Opening new lines of credit. First of all, opening a new line of credit does issue another hard pull on your credit so that's strike one. Secondly, using a line of credit will increase your debt to income ratio which in turn may increase your rate. Stay away from large purchases and credit spending until after you've closed escrow.
4. Maxing out existing credit lines. Moving is expensive, especially if relocating to a new city or state. There's nothing wrong with spending money on movers and new furniture; it's necessary. Just wait until after closing. Any large sums of money spent during your shopping or escrow processes will increase your debt to income ratio and, as stated above, will negatively affect your rate.
5. Failing to forward your bills. Don't create credit problems for yourself after the purchase. As we mentioned in item one, many people have accounts in collections because they had no idea the city sent their closing utility bill to their old address. Make sure to have all your bills forwarded, particularly utilities bills and anything else pertaining to your previous residence.
A mortgage broker can help you correct your credit and identify the best rate for you based on your income and credit qualifications. If you're just beginning your search for a home, start with a good lender who can help point you in the right direction.
An Orange County native and Team Manager of The Kurt Real Estate Group with a heavy background in both Marketing and Transaction Coordinating, Liz has handled it all - from listings to buyers, from t....