Have you been renting for some time now and feel like the timing is right to make the leap to becoming a homeowner?
Maybe your friends are all buying houses and your job feels pretty stable. Could it be time to settle down and start paying your own mortgage instead of your landlords?
Well, if you have given it considerable thought and are certain you can cover emergency costs like unexpected roof replacement or furnace repair, and you have a realistic expectation of how much home you can afford, then the timing just might be right for you. However, buying a house can be a trying experience, and it is only made worse by credit mistakes, so let’s talk about how to avoid them.
The Absolute Top Credit Mistakes to Avoid When Buying a Home
Everyone makes mistakes in life, even when it comes to their credit. The process by which your credit score is generated has long been veiled in shadows, making it doubly easy to misstep without realizing it. However, there are certain mistakes that homebuyers often repeat, thus impacting their credit score:
1. Being unaware of what is in your credit file. The last thing you need is a bit of a surprise when you start your application for a mortgage loan. If you have collections that you are unaware of, judgements that were never served to you, or just plain bad information in your file, these items have to be resolved before you can move forward. It can take a while to completely erase the effects of any negative information in your credit file, so you may find it necessary to address some things before you can move forward on purchasing a home.
Go to annualcreditreport.com for your once-a-year FREE credit report. Download that thing, print it out and carefully check it line by line for accuracy. Contact any collection agencies that may be listed so you can work out a payment plan if necessary, or get the item cleared if it is erroneous.
2. Applying for mortgages over a long period of time. It makes sense to pull your credit file six months to a year ahead of when you plan to purchase a home, since there might be surprises that will require time to fix. If you pull your scores yourself, it’s not as big of a hit to you as it would be it you had a lender frequently checking your scores. When you are certain you are ready to buy, do all your mortgage shopping within a 14- to 45-day window. Ask your lender how long credit inquiries for mortgages will remain grouped, only being counted as a single credit pull. Ask about the difference between a “soft” pull and a “hard” one.
3. Opening new lines of credit in anticipation of closing. While it may seem sensible to have all your furnishings in place before your move-in day, you should hold off on opening new credit to make big purchases until after closing. Making the mistake of purchasing some big ticket items while in the mortgage approval process might just jeopardize your ability to get the loan at all.
The problem with a new inquiry when applying for new credit is sort of a double whammy. First, it’s a hard pull on your credit, which will reduce your score, and secondly, if you use that credit line, your debt-to-income ratio will increase. In fact, depending on how much of that credit line you use, your utilization rate may also increase. Sadly, you may find your loan cancelled at the last minute when underwriting is re-verifying your application.
4. Maxing out your existing credit lines. Moving can be pretty expensive, even if you’re only moving across town. The moving truck alone can cost hundreds of dollars, and that’s if you do all the packing, loading and unloading yourself. There’s nothing wrong with renting a truck or hiring a professional mover, but be careful how you pay for it. If anything changes to the negative about your credit score, credit utilization and your debt-to-income ratio, your loan can be cancelled.
5. Failure to forward your bills. After closing, you could still make a few credit mistakes related to your move. Did you remember to pay that last utility bill at your old address? How about the cable company? It may seem like an obvious error to avoid, but when you’re in the midst of that moving stress, sometimes it’s all you can do to grab a pot of coffee and get moving again. Protect your credit by ensuring that you pay those final bills.
Buying a house with a mortgage loan can feel like an exercise in paperwork collection, but the truth is that all of it is necessary for you to get the very best rate and terms from your lender. After all, they really do want to ensure your success with their loan because when you succeed, they succeed.
Ready to take the plunge and start the process to becoming a homeowner? Contact me and let’s get started!