Congratulations! You are ready to buy your first home! First time home buyers often are excited but also have many questions. The process can be confusing and overwhelming. Let’s examine what steps borrowers need to take to prepare their credit so they are ready for mortgage financing!
It is recommended borrowers learn what their credit score currently is and then take steps to maintain or improve it. A credit score is the way lenders know how well you pay existing creditors. Do you pay your bills monthly or do you fall behind? Any time a borrower is over 30 days past a bill due date it is reported to the credit bureau and influences credit score. A high credit score means bills are paid on time. This indicates a reliable borrower and will result in the opportunity for a mortgage with better terms. If you find out your credit score is not ideal you can take steps to improve it. Pay down revolving credit and make sure you don’t miss any payments going forward.
Establish Credit History
If you do not currently have any debt you may think that makes you a great candidate for a mortgage. However, lenders generally want to see how well a borrower does with a regular bill. Therefore, if a borrower has no debt, they don’t have a credit history to demonstrate that they would be a good borrower. Consider opening a credit card to establish a financing history before applying for a mortgage.
If you had a collection account in the past be sure you have a receipt showing the account has been closed. In some cases the collection agency does not update the credit report. Therefore it may be necessary to prove the debt was paid.
A mortgage with a lower interest rate results in lower monthly mortgage payments. It also means that over time money is saved because less interest is paid. To obtain a mortgage with a low-interest rate a good credit score is needed. For more information about obtaining a mortgage contact us.