Financial considerations and preparations are central to any home purchase. In addition to helping you make better decisions about what you can afford in a home, a buyer who already has financing in place is in a better negotiating position when it’s time to make an offer to a seller.
Getting a jump on your mortgage now can greatly alleviate headaches later. If you’ve already lined up a lender and secured a commitment on your mortgage, the process of closing will go much smoother.
Determine Your Credit Status
Because any mortgage lender will review your credit history, it’s wise to verify your credit rating before beginning your home search. Even if you’re sure you have an excellent credit record, there may be blemishes in your credit history that you don’t even know about. Identifying and resolving any credit problems to improve your credit rating will provide benefits, such as preferred rates from lenders and home insurers. Acquiring a copy of your credit report is simple. Three major credit bureaus – Equifax, Experian, and TransUnion – compile consumer credit data. The Fair Credit Reporting Act allows consumers to obtain one free credit report from each of the three major reporting bureaus every 12 months.
Selecting a Lender
When selecting a lender, your goal is to obtain a mortgage loan with terms that are most favorable to your situation. In order to find the best home loan for you, contact several lenders to discuss what they offer, their rates, closing costs, and other fees. If you already have a mortgage, contact that institution too. Ask me or your friends to refer a good loan officer. I know several who have provided excellent service to past buyers.
You should get pre-approved before you begin your search. This way you know the price range you can comfortably afford and most importantly, when you find just the perfect dream home, you are ready to make an offer before someone else snatches up the property. You don’t want to be scrambling to arrange financing while other offers are pending on the same property. You might end up standing on the sidewalk watching another buyer move into your dream home.
FICO scores are calculated by each credit reporting agency each time a lender requests your credit rating. Your score may differ slightly from each reporting agency, although in general the scores from each agency will be similar. FICO scores are a very important loan criteria, although not the sole criteria a lender uses to determine your credit worthiness and ability to repay a loan. A higher FICO score means a better credit rating, which usually translates into a lower interest rate and a lower monthly payment. Any FICO score of 700 or above is good. You can typically find loans with FICO scores as low as 620 640.
Tips to improve your credit score
- Set up reminder to pay bills early or on time
- Check your credit report for errors
- Reduce the amount of debt you owe
- Don’t open or close credit card accounts
- Pay off highest interest rate cards first
- If closing lines of credit, make sure they are removed from your credit report.