7 Approval Steps for your Credit Score when Buying a House

Simply put, your credit score when buying a house is the first thing you need to look at. The very moment you even think you’re going to buy a house in the near future, begin preparing. Credit score is an essential component of having your loan approved because it determines the loan programs for which you are potentially qualified.

This article is to get you started on the path to having your credit in the best condition possible before you apply for a mortgage loan. Here are the 7 steps to approval when buying a house.

1. Pull your own credit reports first.

Whether good or bad, pulling your credit score prior to applying for a mortgage is an absolute must. Don’t wait to be surprised when it’s pulled for you. There may be dark spots on your credit report, or good things that haven’t shown up yet, but you will only be able to confidently explain these things to your mortgage lender if you pull your credit report ahead of time. It’s always better to be prepared.

Not every creditor reports to the credit bureau monthly. Providing up to date information can increase your qualifying ability and decrease your rate.

2. Keep paying your bills on time (or start paying off late bills immediately).

We’re emphasizing how critical paying your bills are to your credit score, the cornerstone of any loan application, not insulting your common sense. If you have unpaid or overdue bills and balances, start paying something to your creditors immediately. Late payments can dramatically alter the rate, the terms, and even whether your mortgage loan is approved.

Always try to avoid your accounts from going into collections. It’s easier to prevent collections than it is to correct the situation after.

3. If in collections, CONTACT THEM.

Making payments as mentioned above will prevent falling into collections. However, if you have accounts in collections simply calling them can often remedy that circumstance. They will usually accept less than the total amount owed to clear you of the debt, offer you a payment plan, or, if you had a unique situation during the tax year that bill was acquired and your taxes show your income was under a certain amount, you may be able to be cleared of that debt. Basically, no good can come from ignoring your collections notices, but where there is communication, there is possibility.

Or, if you’re disputing a debt, pay it until your dispute is resolved.

4. Don’t hide your past financial difficulties.

Never work with a mortgage broker that isn’t on your side. One of the important services that a good mortgage broker offers is helping you overcome past financial difficulties that may hinder your ability to have your loan approved. Supplying more information not only helps them provide the best possible terms and rate, but also minimizes the impact these issues can present.

5. Do not open new accounts in the months preceding your home purchase.

Even when considering buying a home, consider opening new accounts off limits. Even applying requires the pulling of credit reports, and too many of these inquiries can lower your credit score.

6. limit your liabilities.

Loans are approved largely on the percentage of your income used to pay off debt and other financial liabilities. You can get approved for a larger mortgage and therefore a more expensive home if you have lower credit card, automobile, student loan and other debt payments. Signing and/or co-signing for someone else’s purchase or loan can also increase you liabilities.

7. Do not close unused accounts until the purchase has finalized.

The portion of your available credit currently being used helps calculate your credit score. The lower the ratio the better. Closing accounts will increase the overall percentage. However, as discussed, opening new accounts to reduce your ratio is unlikely to help you.

Applying this process to prepare your credit score for buying a house will absolutely get you on the road to where you need and want to be when you walk into your mortgage lender’s office for the first time. How long it takes will depend on your effort and how much you’re able to put into it. But, it’s worth it in the end. Remember, in many circumstances, it’s better to buy than to rent from a financial point of view. Putting the effort in upfront to repair and prepare your credit score will save you grief and dollars when you’re in your new home and when you begin making your mortgage payments. For more professional advice on buying and the home buying process, see our Buyer’s Resource.

To order a copy of your credit report, contact:

Equifax: (800) 685-1111

Trans Union: (800) 888-4213

Experian: (888) 397-3742

To search homes for sale in Arizona right now, and to view your estimated monthly mortgage payments, click here.

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