If you’re contemplating buying a home, you’re probably thinking about how you’re going to qualify for a home loan. There are many things you can do to clean up your credit and improve your chances of getting approved, but most of them take time. Right now home prices are low and more importantly, interest rates are extremely low. But what if your credit isn’t spectacular right now? What can you do to raise your credit score right away in order to take advantage of the current interest rate and home price situation?
Of course you should embark on your long-term credit improvement plan. Don’t buy anything that you cannot easily afford and make sure you don’t slip up and pay any bills late. But if you’re looking to buy a home in the next few months, there are some short term fixes that can help you get approved for the loan.
Get a copy of your credit report and address any errors. You can sign up for a credit watch service if you like, but you can also do it yourself. The three credit reporting agencies, Transunion, Equifax and Experian are required to give you a copy of your credit report. Just go to their websites and request a copy. If there are any errors, such as problems that were incorrectly assigned to you when the debtor was actually someone else, you should challenge those errors. It’s important to do this with all three, because you never know which service a lender is going to use. Many of them now order all three reports.
Sometimes there will be problems on your credit report that are accurate because you really did default on a loan or make some late payments. If this is the case, a letter of explanation is in order. In your letter, explain what happened and what you did to fix it. Lenders are more likely to approve a loan if they believe that these problems won’t be repeated. If you were temporarily unemployed, had a serious illness or went through a divorce, let them know. Those are temporary problems. If you took steps to correct the problem as best you could, let them know that too.
Hold off on getting a car loan or incurring any other debt. The lending requirements for mortgages are more stringent that those for other types of loans. After you’ve closed escrow on your new house you can go out and get that car, stereo system or whatever you want. Just stay within your means. Also, a mortgage lender takes into account your monthly debt payment. Typically the maximum monthly debt payments, including the costs of the mortgage and other home related expenses is about 45% of your gross income. Any loans you get now could reduce the amount of the payment they’ll approve you for.
Paying down debt is an excellent long term strategy. Paying down loans that are nearing the end of their term is a great short term strategy. Lenders typically don’t count loans that have less than 10 months left. Concentrate on doing what you can to decrease monthly payments on loans that have more than 10 months to go. Credit cards should be at the top of this list, especially if you are near your credit limit.
The typical home buyer want to get the best house he can possibly afford. With home prices down and interest rates low, this is a great time to maximize the amount of the loan you can qualify for by following the above steps. Begin the process as soon as you’re able to. By the time you find your dream home and talk to a mortgage broker, your credit score will already be looking better.
While you’re getting everything in order to qualify for a home loan, you can go house shopping! Check out these new homes in San Marcos, California.
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Tags: credit, Debt, finance, home loans, loans, mortgage, Mortgage Debt, Real Estate