Common Credit Myths You Need to Know Before Buying Your Next Home
If you have good credit and think you won’t have any problem buying a house, you might need to think again. Most people with good credit have many common misconceptions about their credit and how it could affect their likelihood of being approved for buying a home. When in fact, having good credit, even extremely good credit, doesn’t necessarily mean you are a good risk in the eyes of a mortgage lender. Keep reading to learn some of the most common credit myths that could cost you thousands of dollars over the life of your mortgage loan.
1. Do you have a large amount of cash? Do you have a fairly high income? Do you have some reasonable equity in your home? If you answered yes to those questions, you probably think your FICO score is not a factor. That is false. The fact is that your credit score is what determines whether or not you will be approved for a home loan. It will also determine what the interest rate will be for that loan. There are only two exceptions to that rule. If you pay cash or if you put down a great deal of money on the home.
2. Are you debt free? Do you pay all of your bills on time? If you answered yes to those questions, you probably think you have what is considered good credit. That is false. Lenders look at your credit differently than you do. A lender will look at your FICO score to see how well you manage your debt and your credit. The lender will look to see if you’re at your limit on your credit cards, and if you are, but you continue to apply for more credit, a lender will consider that credit abuse.
However, if you have credit, but don’t carry any credit balances on the credit you have, that doesn’t mean you have good credit in the eyes of the lenders. You may find this hard to believe, but you will get a higher FICO score if each month you carry a balance of 30% of your credit limit and you continually make your payments on time. This is where most people are completely baffled, because common sense, in most people, would tell them that no debt is a good thing, when in reality it’s not. Go figure!
3. Have you experienced a short sale or a foreclosure in the past? Many people believe that if they’ve had a short sale or a foreclosure in the past, they can’t qualify for another home. That is false. Remember what we’ve been talking about? Your credit score is the number one factor in determining whether or not you will be approved for a loan. So even though the short sale or foreclosure will stay on your Experian and Transunion credit reports for seven to ten years, that doesn’t mean you can’t work on improving your credit score enough to buy another home sooner rather than later.
In order to achieve this, you will need to start paying your bills on time. It will also require that you have a reasonable amount of money to put down on your new home. And if you had any extenuating circumstances that caused your short sale or foreclosure to occur in the first place, that should be explained. This alone could help lead to a more likely approval and quite possibly a lower interest rate.
The bottom line is to save your money and use your credit accordingly. Take all of these credit tips we’ve given you to get the most desirable loan you can. Your best bet is to talk with your realtor about buying a new home. He can then make the proper recommendations for your specific situation.
Your realtor has plenty of experience in dealing with mortgage lenders. He will assist you in making the necessary corrections that could lead to a mortgage approval and quite possibly the lowest interest rate available for your new home. Asking your realtor for assistance could ultimately save you thousands of dollars over the course of your loan.
