So you’re looking at new houses or looking to refinance. What’s the very first step you should take.
Pull your credit. There is a lot you can do to improve your credit before you ever shop for a mortgage but you have to know what your credit looks like first. There are several ways to get a free credit report. The 3 credit reporting agencies all offer a free credit report. TransUnion, Equifax and Experian. Better yet, get your free report from each to see if there are any discrepancies. Do this 2-3 months before you start shopping for a mortgage.
Look for any errors. I’ve had clients all set to purchase but when the bank pulled their credit their father’s bad credit was mixed up on their report or there was a credit card showing a delinquency that wasn’t a card they recognized. It took a while to fix and by the time they did-their dream house was gone. If you find a dispute, each credit agency has an online dispute form that you can fill out. Most take about 30 days to process so get started early.
Start paying down debt. You’re trying to save a deposit and the bills are piling up-it’s easy to just make the minimum payments but paying down your credit card debt will raise your debt to income ratio which is the holy grail of lending.. Bottom line your income to expense ratio has to be lower than 38%.
Don’t apply for any new credit. Banks don’t like to see any new credit being opened right when they are considering you for a mortgage. Even if you just got a raise, hold off on buying a new car or even leasing one. Don’t open any new credit cards. Wait until after you close on your home, then make those other credit decisions.
If you don’t have any credit –get it. Banks want to see a positive credit history. Student loans, credit cards, auto loans. Most banks want at least 2, sometime 3 accounts. If you’re a first time purchaser, just out of college, or you’ve been living with your parents, put some utility bills in your name. Open a credit card and pay it back on time. The banks can’t offer credit to someone who has never had it before. They need to see that you are a reliable risk for them.
Keep your old credit accounts open. I know rule 3 says pay down debt but closing older accounts that you don’t use anymore can actually hurt you. The older accounts help boost your credit score because they add positive points to your score. Try to use those credit cards every few months and pay the balance in full, this keeps the account active and shows you have a long history.
Many of us struggle to keep our credit in great shape. Following these simple steps can help you avoid any surprises when applying for your mortgage
Kate's a practicing Attorney for over 20 years. She is a pet rescuer and a strong supporter of pets Rights. Kate expertise is Real Estate, Probate, Estate Planning, Personal Injury, and Business contracts. Kate is happy to discuss any legal or pet matter you may have and if she cannot help; she is more than happy to point you in the right direction. Kate Forte 17 Good Hill Rd Woodbury Ct 06798 Office 203-598-8847 Fax 203-841-1116