If you’re thinking about buying your first home then you’ve got a lot to think about! There are likely numerous questions swimming around in your head – especially when it comes to qualifying not just for a mortgage but for a mortgage with good terms. Take a look at these simple credit tips that can help you get the lowest possible interest rate.
Check your credit
No matter where you’re starting from – whether it’s no credit, good credit, or poor credit – the first step is to check your credit score. It is the most important factor that banks will consider when you try to qualify for a loan. Standards are high and your score has a huge impact not only on whether or not you’ll be approved, but how much the loan will cost. Look at your report and keep an eye out for anything in collection and any errors on your report.
Understand the complicated process of scoring your credit
Many people setting off to buy their first home assume that all it takes to have perfect credit is paying their bills on time every month. While timely payments is one of the most important factors, it’s not the only one – you must also watch your credit utilization. If you use more than 30% of your available credit at any given time, you’ll likely see your credit score sink. The good news is that as soon as you get below that key 30%, you’ll see it rise again.
Take a close look at your assets and liabilities
Homeowners who don’t owe too much and have up-to-date payments may think they’re in the clear, but there’s still one question left: how is their money spent? Do they have thousands of dollars leftover after paying the bills every month, or are they living on a paycheck to paycheck budget? First time homeowners need to understand what’s coming in and what’s going out. Try tracking your spending for a few months. This will give you an idea of where your money is going.
Your credit affects more than your mortgage payment
Some homeowners buy a home with poor to fair credit and accept that they’re going to pay a higher interest rate – for a while. Their plan is to build their credit and refinance at a lower rate. There are several problems with this idea. First of all, though economists have educated guesses, there is no way to know if interest rates are going to go up or down in the next few years.
Second of all, your credit score affects other monthly expenses too. For example, the vast majority of homeowner’s insurance companies now check credit and take it into consideration when offering quotes. Interest rates on credit cards are higher for those with poor credit, which means your monthly expenses stay higher as you’re paying them off – which makes it difficult to save up for emergency repairs.
In short: Bad or poor credit can have a serious impact on whether or not you get approved for a loan, and what you’ll pay for that loan and your monthly expenses. Leaf Credit Solutions specializes in helping borrowers qualify for the best possible interest rates. Contact us today for your free consultation.