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Want to Buy a Home? Avoid These Common Credit Mistakes

Want to Buy a Home? Avoid These Common Credit Mistakes

There is a lot of preparation and effort that goes into buying a home. From searching through various listings to saving up for a down payment to applying for a mortgage and all the inspections and appraisals that get you through to closing, the home-buying process can be complex.

Most home buyers go into this process knowing that their finances will be scrutinized a bit before they are approved to make a purchase. Recent financial moves can make a big impact on your loan approval, and this includes a buyer’s credit. Your current credit score – and even your credit history – can impact your opportunity to buy a home.

If you’re gearing up to buy a home soon, here are a few common credit mistakes that could ruin your chances:

1. Not knowing your credit score.
If you don’t know where you stand when it comes to your credit, you won’t know how to fix any potential problems before buying a home. Before you even consider applying for a mortgage, find out what your credit score is and review your complete credit report.

2. Not disputing any mistakes.
If you scour your credit report and see something that doesn’t add up, ask questions. If something has been falsely reported, you have the right to dispute it. Why not improve your credit score by speaking up, rather than allowing misinformation to damage your chances of buying a home?

3. Making late payments.
Responsibly using your credit is a good thing when you’re applying for a mortgage. However, using your credit and then missing or making late payments will certainly ruin your chances at getting a mortgage. If you want to use your credit, make timely, monthly payments to maintain a good credit rating.

4. Using all available credit.
While we said it is OK to responsibly use your credit, you should never spend all the credit that you have. Lenders will take a close look at your debt-to-income ratio, so your available credit will be under direct consideration before you buy a home. Make sure you’re not maxing out your credit cards if you want to purchase a home.

5. Closing credit card accounts.
Many credit users think it is a good idea to pay off and close credit cards when they’re applying for a loan. Again, you need to remember that your available credit will play a role in your ability to buy a home. If you keep inactive cards open, you might be able to increase your debt-to-income ratio.

6. Making a major purchase before closing.
Regularly using credit for small purchases and paying monthly payments is OK when you’re aiming for mortgage approval. But you shouldn’t make a major purchase on a credit card when you’re trying to buy a new home. Hold off on buying that washer, dryer or other appliances until your finances are not under such scrutiny.

7. Cosigning for a loan.
If might seem like a harmless idea, offering to be a cosigner for a younger sibling or family friend who would like to borrow money. But keep this in mind. If your family member or friend defaults on their loan, you are responsible. If you’re trying to buy a home, you don’t want to carry that financial burden.

8. Applying with a partner who has bad credit.
Finally, you could have stellar credit, but if you and your partner are buying a home together, you need to make sure that you are in similar standing. A partner’s bad credit score could cost you a better financing rate – or even worse – mortgage approval!

Before you apply for a mortgage, get familiar with your credit and do what you can to improve your score. You’ll not only put yourself in a better position for approval, but you could secure a better financing rate too. And when you’re ready to start your new home search, contact our team for help!