Credit Check When Purchasing a Home

Credit Check When Purchasing a Home

A prospective home buyer looking to borrow on a mortgage loan today can compare lenders quotes for their best rate and term offer on a mortgage loan, but these mortgage lenders require evidence from the borrower of a demonstrated ability to pay back the home loan. Living a financially conservative lifestyle and planning ahead for your family is a part of becoming a responsible mortgage buyer with excellent credit.  Focus on building an established trend of borrowing from various lines of credit and promptly paying the balances back in full.  This can include car loans and retail purchases on your credit cards, the more credit history you establish sooner, the faster you will avoid a common pitfall of “insufficient” credit history. If you have less than 3 or 4 credit lines on your credit report, consider opening additional lines of credit to build your overall credit strength over time.  Too many hard credit inquiries in a short period of time can temporary knock down your credit score a few points, but the long term benefit of being able to borrow more money will allow you to establish a history of repaying debts.  Just like comparing mortgage lenders, make sure you research for the best credit card offers which often carry promotional 0% borrowing periods for new borrowers.

If you’re not keeping track of your credit history and FICO score, it may save you from unwanted surprises in the future by accurately keeping track of your credit.  For individuals that are planning to buy a home, factors related to your credit history can certainly affect ability to borrow on a mortgage loan.  Financing the purchase of a new home?  Your credit score and employment history are the most important factors in qualifying for a mortgage loan at record low interest rates.  Are you looking to get pre-approved by a mortgage lender?  The home buying process for first time home buyers is a learning process.  Check your credit score with the three main credit bureaus: TransUnion, Equifax, and Experian.  Mortgage premium insurance may be a reasonable trade off if you may not have enough money for 20% down payment at the time of purchase and you can consider refinancing your mortgage loan in the future and eliminating the PMI.

Once you have established an ability to borrow from multiple lines of credit, the most important factor to consider is to pay back the debts in a timely manner.  Pay your credit balances on time and in full, avoiding late payments and minimum payments are the most basic practices to avoid falling out of budget and maintaining reasonable card balances.  Consider what a mortgage lender may think if they see you are making late payments or missing payments on your credit card accounts, they may determine your loan terms based on these credit factors.  Remember to setup secure auto-pay accounts whenever possible and to meet outstanding payments in full and on-time to maintain excellent credit history.

When you are comparing offers on a new credit card, search for promotion low interest or 0% offers without annual fees.  If you plan on using travel miles, travel rewards and airlines rewards miles credit cards are great ways to reduce the cost of traveling – those travel rewards may even be worth the $100 annual fee, but be sure to read the details of your card agreement.

Early building of credit involves more than just credit card accounts.  Make sure to have utilities, telephones, rent and any other kinds of loans associated with contractual agreements to make payments.  All of these are examples of your ability to repay a mortgage loan for a prospective lender – remember, mortgage lenders want to see consistent monthly payments.  These credit building accounts should be open for long periods of time, the earlier the better, so get started soon! Keep everything simple for at least 6 months to 1 year before applying for a mortgage loan.  Taking out a loan for a car or boat prior to purchasing a home could affect the borrowing terms and the rates offered on your mortgage loan.

Don’t throw away or cancel unused credit cards, the longer the open line of credit for a particular account the stronger it will reflect on your credit history.  Even if your card maintains a credit balance of zero for months or years, keep the credit card safe and use it for emergencies, this can demonstrate a higher ability to borrow.  If you have ever checked your credit score, you may have noticed that the number of accounts, the total amounts, and total credit utilization are key indicators for the score.  It’s important not to use more than 50% of the total credit available to you at any given time.  Make sure to keep up with your credit card payments in full and on time.  Another method for reducing your credit utilization ratio is to request an increased line of credit from your credit card issuer – marginal increases in credit are typically approved by the credit card company and should be a part of your plan to build an excellent credit history.

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