Preparing to Buy a Home

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credit diceIf you’re ready to buy a home, you probably have a lot of questions. The first and most important one being – How much can I afford?

Lenders use your credit score, a ranking based on your bill paying history, to determine the risk of lending you money and the likelihood you will repay the loan on time. If you have a lower credit score (below 650), you’re considered a higher risk and may have a harder time obtaining a mortgage, at the rate you want, than other buyers with a high credit score (above 700).

The first step in the home buying process is to find out what your credit score is, fix any errors and take steps to improve your credit if necessary. Here are some tips to help get you started.

Obtain your credit report

Credit reports are maintained by three credit reporting companies (often referred to as credit bureaus): Equifax, Experian and TransUnion. The most important items found on a credit report are your credit payment history, whether you make your payments on time and whether you’ve run into serious credit problems in the past. Each bureau gives you a different credit score because they each use different formulas to calculate it.

The Fair Credit Reporting Act entitles you to one free credit report per year from each credit bureau. You can get these directly from the bureaus, from a variety of websites like AnnualCreditReport.com or from a mortgage broker like Metro Brokers Financial.

Correct errors

If you find any mistakes on your credit report, like a bill that is not yours, start trying to get it corrected immediately. It can sometimes take many weeks to get an error fixed. Visit the credit bureau’s website for instructions on how to begin the correction process. You will want to submit a written request to the bureau; keep a copy for your records; keep records of any communications between you and the bureau; and follow up regularly.

Improve your credit score

If your credit score is lower than 700, you may want to work on improving your credit score before applying for a mortgage. I’m not saying you’ll be turned down, but you may not be eligible for the best rates.

There’s a really good tool called the Credit Doctor that is designed to diagnose your credit health and (in some cases) prescribe a plan of action that could potentially change your credit score, if followed properly.

Other tips: Pay all of your bills on time and do not incur any new debt, especially if you’re getting ready to purchase a home. These may seem obvious, but you’d be surprised how many people get excited about their new home and buy a bunch of furniture, skip a payment or they go ahead and spring for a new car thinking they’ve already been approved for a loan. This can prevent you from getting the same low rate you were originally offered (or derail the closing altogether).

You may also want to look at paying down some of your debt, like your balances on credit cards, but your best bet is to talk to a mortgage broker to help get the process started.

If you have tips or questions on prepping your credit to buy a home, let us know.

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8 Responses to “Preparing to Buy a Home”

  1. Monique Mills Says:

    The steps mentioned are so very important to the beginning of the homebuying process. Many buyers go straight to looking at houses and then look at the credit and mortgage options afterwards and this should be the other way around. Your credit analysis and mortgage options will determine the house you can buy, and most importantly what price range it will be in. For example, a buyer may go out and view $300,000 homes and find some that they fall in love with and then contact a mortgage company to see about their options. A buyer can be informed that they qualify for $200,000 or $250,000 in mortgage which would mean that they would have to have $50,000 to $100,000 in cash in order to buy the $300,000 or the other option is to look at cheaper homes. That can be very disappointing when you have fallen in love with the options available in $300,000 homes. So the best advice to follow: Know your credit and financing options before house shopping. By the way, the online “How much house can you afford?” calculators are not accurate. Contact a REAL mortgage broker like Metro Brokers Financial who will tell you the truth about your options and what you can actually afford.

  2. Lynn Driver Says:

    I too thought this was great. Buyers realize their reality once they are pre-quaified and what they then might need to do, if anything, to get into the home they are actually qualified to purchase.

  3. Yvonne Thomas-Brooks Says:

    If anyone is on the fence about buying a home or an investment property, a Metro Brokers agent has all the tools to help them make an educated decision while offering support and resources that parallel to no other real estate service provider in the Georgia Market. Excellent Read!

  4. Hannelore Ahearn Says:

    In this economy, I have been in contact with soooo many people who didn’t know their current credit score or for obvious reasons, really didn’t want to know. When they found out the truth, many were shocked! The mortgage genius’ I refer here at Metro Brokers, have a credit score solution. Its real work, not a band aid.
    These potential clients have turned into a future client. They may be upset now that they can not buy anything in this buyers market, but if they do what my mortgage genius colleages at Metro, say to do, they will be able to get into a home! They will come back and in the meantime, I will stay in touch and get referals.
    I want to be very sucessful, regardless of what life throws at me – health problems (ugh) and the new and exciting dynamic industry of being a all encompassing Realtor and investment advisor. It’s a sunny day, everyday.

  5. Jennie Nerud Says:

    One common mistake many potential buyers make is closing all of their accounts. This may seem like the right thing to do but it is not. Closing all of one’s accounts can actually LOWER the credit score significantly. Judy Jones has discussed this in the homebuyer’s seminars. Be sure to check the dates of these seminars on metrobrokers.com. Also, Credit Doctor is an excellent tool to utilize for buyers that need a plan of action to improve their scores.

  6. ann bone Says:

    Buyers who have already established their home budget and have verified it with a good loan officer have a “mental checkbook” and can have fun looking at homes rather than worrying what the payment will be and whether they can afford it or not. These buyers know that they can afford every home they view – just pick the one they will enjoy the most.

  7. tony williams Says:

    For all of the hardworking agents that do not like to deal with REO properties… If you ask me, if I had my choice, I prefer to list and sell REO properties.This is my bread and butter. I Love It! Stay focused gang!

  8. Dennis Doll Says:

    This is a great article for all the First Time ….and even 2nd, 3rd etc. Buyers out there. First time Buyers need a guiding hand. Subsequent Buyers may not realize the changes that have happened to the lending industry over the past 2 years. I recommend it to everyone!

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