It’s more important than ever to prepare your credit for a mortgage application. Cleaning up your credit report and increasing your credit score will improve your chances of getting approved. If your credit’s already good, maintaining it will be key in locking in a low interest rate.
1. Check Your Credit Reports
When you make your application, the mortgage lender look for three main things: a steady income, a down payment, and a solid credit history.
Checking your credit report will let you see if there’s anything that’s hurting your credit. You never know which credit report the bank will pull, so check all three of them. You can get a free copy of all three credit reports at AnnualCreditReport.com.
2. Dispute Inaccurate Information
Misinformation can hurt your credit score and get your application denied . Get rid of any inaccurate information by disputing it with the credit bureau. If you have proof of the mistake, providing it will help ensure the mistake is removed from your report.
3. Pay Off Delinquent Accounts
Delinquent accounts include any late accounts, charge-offs, bills in collection, and judgments. Mortgage lenders need to be convinced that you’ll make your payments on time.
Outstanding delinquencies will kill your chances of getting a mortgage. Pay off all accounts that are currently delinquent before putting in a mortgage application.
4. Bury Delinquencies with Timely Payments
You need to establish a pattern of timely payments to get approved for a mortgage and get a competitive interest rate.
If you have a recent late payment - or you've just paid off some delinquencies - wait at least six months before applying for a mortgage. The older the delinquency, the better your credit looks.
5. Reduce Your Debt-to-Income Ratio
Your mortgage underwriter will question your ability to make your mortgage payments if you have a high level of debt relative to your income. Bring your monthly debt payments to at most 12% of your income – the lower, the better. (After you get a mortgage, your debt-to-income ratio will skyrocket, but shouldn't be higher than 43% of your income.)
6. Check Your FICO Score
Order your Equifax and TransUnion FICO Scores from myFICO.com to get an idea of where your credit stands. Your FICO score should be at least 720 to get good interest rate on a loan. If your score is lower than that, read through the included analysis to find out what’s bringing your score down. Note: Although lenders still use it, Experian no longer allows consumers to purchase a FICO score based Experian credit report data. If you want to get an idea of your Experian credit score, you can purchase a VantageScore or buy a three-in-one credit score from Equifax or TransUnion.
7. Don't Incur Any New Debt
Taking on new debt can make a mortgage lender suspicious of your financial stability – even if your debt level stays below 12% of your income. It’s best to stay away from any new credit-based transactions until after you’ve gotten your mortgage. That includes applying for credit cards, especially since credit inquiries affect your credit score.
Start the process by contacting a PrimeLending/ home loan expert at the McMullen Group today.
thebalance.com
