Sure, you’ve saved up for a down payment on a new house, but if you have average credit, you may have a hard time qualifying for a mortgage and buying the home of your dreams. The good news is, you can do a lot to improve your score before you apply. With these tips, you’ll have a much better chance of getting approved and locking in an affordable interest rate.
If you’re up to your ears in credit card debt, lenders will probably think twice before offering you a mortgage because both your credit utilization ratio and your debt-to-income ratio will be high. That’s why it’s a smart idea to start paying off those balances before sending out mortgage applications.
Make more than the minimum payments on your cards each month. Not only will this boost your credit score and lower your overall debt load, but it will also save you money on interest and show potential lenders that you’re serious about repaying what you borrowed.
Mistakes happen. And when they do, you don’t want to be the last person to know about them. Get free credit reports online from the three major credit bureaus, TransUnion, Equifax and Experian, and go through them line by line, checking for inaccuracies. If you come across an error, file a dispute as soon as possible.
Both Equifax and Experian have online dispute forms you can complete, and TransUnion has a form you can fill out and mail in. After submitting these forms, the credit bureau will contact the source, and the claim will be investigated within 30 days. You also have the option of sending a letter of dispute directly to the credit reporting companies with copies of supporting documentation. Remember to send these via certified mail to ensure the company receives your dispute.
If you’re moving into a new house, you may also be interested in getting a new car for your driveway and furniture to fill your rooms, but hold off on applying for new credit cards and auto loans until you’ve locked down that mortgage. You want your credit report to look as clean as possible when you send in your application, and many new inquiries may raise red flags for lenders.
Nerd note: While delaying the credit card applications could be a good call, it’s generally not a good idea to close all your paid-off cards at the same time. If you do this, your credit utilization ratio may go up and your credit history may appear shorter and less varied, which could also hurt your score. Instead, plan on keeping your accounts open, at least until your mortgage is approved.
Shop around for a mortgage with the best rates, but don’t let your search drag on. After about a month, your FICO score may start reflecting your applications as separate inquiries, which could ding your credit score. This could potentially be an even bigger problem if your lender uses the less common VantageScore or an older version of the FICO score, which consider mortgage applications as separate inquiries if they’re not within two weeks of each other. To stay on the safe side, keep your search focused and brief.
If possible, get pre-approved for a mortgage before even shopping for a house, so that if you do find the home of your dreams, you won’t have to worry about getting approved for a loan later.
You’re focused on getting a mortgage now, but remember to protect your credit score after you’ve been approved. Once you make your down payment on your new house, your savings may take a hit and you may feel tempted to start relying on credit more heavily. In the short term, that may be OK, but making it a long-term habit could do some serious damage to your credit score.
If your savings account is dwindling, consider cutting back on fixed expenses and work toward saving six months’ worth of living expenses. This way, in case of an emergency, you won’t have to use your credit card as a crutch. By protecting your credit score, you’ll also have an easier time applying for mortgages and other credit lines down the road.original post: www.nerdwallet.com
A mortgage loan often involves many fees, such as: lender’s origination or underwriting fees, broker fees, and fees for services the lender requires to originate your loan. In addition, other settlement costs are required, such as initial escrow payments if you establish an escrow or impound account, taxes, government fees, recording charges, and title insurance fees.
What is an origination fee?
An origination fee is what the lender or mortgage broker charges the borrower for making the mortgage loan. Origination services include taking and processing your loan application, underwriting and funding the loan, and other administrative services. Origination charges are listed in Block 1 on the Good Faith Estimate (and Line 801 of the settlement statement), and generally cannot increase at closing. This charge is the biggest difference between a broker GFE and a lender GFE.
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