If you’re going house-hunting in the next year, there are three steps you can take right now to improve the terms of your mortgage.
1. Check Your Credit Score
Your credit score is determined by three different credit monitoring agencies: TransUnion, Equifax and Experian. Paying debts off, making payments on time and using only a small percentage of your available credit make your score go up. Missing payments, opening many credit accounts or carrying a significant balance of debt from month-to-month will decrease your score.
You can check your credit report for free once a year at annualcreditreport.com. Note that there may be a nominal fee to receive your actual score along with the report. There are many similar websites, but many of them will charge you. If your score isn’t at the level you think it should be, there may be errors or inaccuracies that are dragging down your good name. Look for accounts you don’t recognize or balances that are not up-to-date. The report comes with instructions for challenging any item. In most cases, you can leave a note for lenders in the file explaining the item under dispute.
2. Boost Your Credit Score!
There are no simple tricks to bump your credit score in advance of a mortgage. You need to develop a 6- to 12-month plan to boost your credit score before getting your mortgage by making sound financial decisions. Demonstrate to lenders that you can use credit responsibly, and your score will increase.
If you’re working on raising a low credit score, a good target number is 640. This will generally put you in the prime group and ensure you don’t have to pay extra on your mortgage because of credit. If you’re building good credit, 740 is generally the lowest super-prime score, which will give you access to some of the best rates and terms available.
One of the biggest drags on a credit score is percentage of utilized debt. If you’re carrying a balance on credit cards, this tells lenders that you may be using credit to pay for your day-to-day expenses, and that lending you more money would not be a smart move for them. Getting balances to zero should be goal number one! Also, take care that you don’t make any major purchases using credit right before you attempt to qualify for a mortgage. Hold off until you have the cash in hand before you splurge on a new TV or car!
3. Manage Your Loan in Other Ways
If your credit score is low, and there’s nothing you can do about it, you may need to take other steps to get a better position on a loan. You might try boosting your down payment or shopping for less expensive houses, so you’re borrowing a smaller sum of money. A co-signer, another responsible party willing to take on the risk of the loan, can also improve your terms. If your debt is a serious problem, perhaps moving into a new house isn’t a good short-term priority. Focus instead on paying off debt and saving up for a down payment. This can keep you from getting stuck with a house payment you can’t afford before you’re ready for it.
Taking these three steps will put you on the fast track to affordable home ownership! And as always if you have any mortgage questions we are here to help! Contact us at (877) 937-2328 ext. 8500 or visit cfcu.org/mortgage for more info.
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