Make sure your credit is ready before you plan to buy.
Planning ahead has it’s benefits. And the benefit of advance planning for a mortgage comes in the amount of money you can save on added interest charges if you have better credit. Having your credit and finances in order can also help you qualify for a bigger loan, so getting approved for the amount you need to afford your dream home may be easier than you might think.
The information below can help you understand how to use credit repair and a thorough credit report review to your advantage before you move to apply for your next mortgage. If you have questions or need help, call us or complete the form to the right. We can connect you with a specialist to get your credit where it needs to be before you apply.
See what the approver will see
The first step a mortgage lender will take the loan qualification process is to review your credit reports. They don’t just check your score and move on – they’re going to request your reports from each of the three bureaus, review them thoroughly and begin your assessment based on what’s there.
So getting your reports and having them reviewed helps you know what’s there and what the lender will see. You’ll know the good and the bad. Of course, if you find mistakes or errors you’ll also be able to go through the credit repair process to get them corrected.
Use it as a credit springboard
Correcting mistakes through credit repair is one part of ensuring you have the best credit score possible. But reviewing your reports can also help you take steps to build your credit while you’re correcting those mistakes.
Before you apply for a mortgage you’ll want to do the following to make sure you credit score is maximized:
- Use credit repair to correct mistakes or errors in your credit file.
- Minimize your debt-to-income ratio by reducing as much credit card debt as possible.
- Confirm you don’t have a large number of inquiries from new credit applications that would decrease your score during the application process
- Check that public records such as collections or court judgments won’t raise flags.
You can do all of this yourself or use a professional service geared for mortgage approval. With this second option you get the benefit of a professional opinion to point out things that might raise flags. Some services will even coach you in how to achieve better credit before you start the application process.
How much extra interest would you pay on a $200,000 mortgage with a 650 credit score versus a 700 over the life of a 30-year traditional loan?
a) More than $10,000
b) More than $20,000
c) More than $30,000
d) More than $50,000
Tip: It’s actually over $34,900 in added interest charges.
c) More than $30,000
Once you’ve done as much as possible for your credit, then and only then should you apply for a mortgage. Otherwise, even if rates are low, you won’t be able to qualify for a low rate, so you’ll end up paying more.
Choose a service designed for what you need
Credit repair services are not created equal. Even the same company will usually offer different levels of service, depending on what you need. And for pre-mortgage preparation, it’s really worth it to get as much help as possible.
Basic credit repair is fine, but it won’t do anything but help you correct mistakes in your credit report. There may be more you can do to get your credit ready for approval that you miss if you don’t have an expert working to help you reach that point.
Some pre-mortgage services even tie in other services, like finance and budget review or housing counseling. These services help you ensure your entire financial profile is ready to get you the loan approval you want. If the housing counseling is HUD-approved, you may even qualify for things like a reduction in mortgage insurance on FHA loans with a down payment of less than 20 percent. It’s those kinds of technical things you need a professional to point out and help you execute.
So while pre-mortgage credit repair is often more expensive, it may be worth the cost. A few months of fees may cost a few hundred bucks now, but it can save you thousands – usually tens of thousands – over the life of your loan.
Fact: Mortgage rates dipped below 4% as of Q4 2014 if you have good enough credit to qualify.