Your credit score has a major impact on your ability to get a home loan with a low interest rate. That’s why it’s so crucial to make sure your score is as high as possible before applying for a mortgage.
If your credit isn’t in great shape, you can work toward improving it. Use these tips to boost yourpersonal credit score:
- Order your credit report. Before doing anything else, request a copy of your credit report. You’re entitled to receive a free one each year. When you get it, look it over carefully for errors and have them corrected right away. You’ll also find out how much you owe and which creditors you owe.
- Pay your bills on time. Late payments bring down your credit score, and it can take time to raise it again. Make sure you pay all of your bills on time, and don’t miss any payments.
- Carry low balances. Keep your balances low if you can’t afford to pay them off completely. Higher balances will lower your credit score significantly. Keep balances below 50 percent of your limit.
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During your search for a new home, you’re bound to run into a few common misconceptions about the process. Some of these involve the way credit works when you apply for a loan.
These are a few of the most common home buying myths about credit:
- Your credit has to be in perfect shape. Lenders do use credit to make approval decisions and decisions on interest rates, but you don’t need the best score possible. You can still get a mortgage with less than stellar scores, although your interest rate will most likely be higher.
- Lenders can share your credit information. Lenders can share this information with affiliates, but only if you’ve given them permission to do so. There are several laws that safeguard your personal credit information and prevent lenders from sharing it without your permission.
- While there are hundreds of credit bureaus, lenders have base their decisions on the FICO scoring model. Other models such as Score X, Score + or Vantage are consumer based models that give people an idea of what their FICO score might be.
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Unless you’re in the rare position of being able to pay cash for a new home, you’re going to need a home loan to cover the cost. Obtaining a mortgage is more difficult now than it was before the 2008 recession hit, so it’s important to boost your chances of securing one.
Use the following tips to help you get the home loan you need:
- Get rid of debt. Pay off credit cards, if possible, to reduce your debt-to-income ratio. Aim to keep this ratio lower than 36 percent.
- Don’t apply for credit cards. Applying for new credit will lower your credit score, which can hurt your chances of getting a mortgage.
- Fix your credit score. Make sure there are no errors on your credit report, and immediately correct any errors that you might find.
- Offer a higher down payment. Make an offer of 20 percent or more, if you can afford to. This is a big help if your credit score isn’t high.
- Take your time. Give yourself at least six months to financially prepare to apply for a mortgage.
Need more professional advice on obtaining a mortgage? Speak to a United Real Estate agent, and check out our Facebook page.