Check your credit report before you buy a home and get pre-approved

Checking your credit when buying a home, one of the first things you should do is check your credit report and score. your credit score is probably the most important piece of information a lender considers when deciding on your interest rate, so you want to be sure that everything on your credit report is correct. Mistakes can hurt your credit score.

Increasing your rate and monthly payment. you will need to get pre-approved letter for a mortgage before hunting for the home you want to buy. click here to start with credit score.

Shopping for a home without mortgage pre-approval

Is kind of like shopping for clothes without knowing how much money is in your wallet. the best way to know how much you can afford to spend on a home is to get pre-approved for a mortgage and then look for a home that the mortgage amount will cover.

Being Pre-approved for a Mortgage

May also give you a market edge when a home buying. if a seller has two buyers interested in purchasing the home at the same price and only one already has mortgage pre-approval,the one who is pre-approved is much more likely to get the home.

What is a Credit Score? 

A credit score is a number, based on your credit history, that estimates how likely you are to repay debt. It is typically a three-digit number between 300 and 850. The larger the number, the better your credit is considered to be. Having a high credit score can help ensure you get the best mortgage terms on your home loan. On the other hand, a low score means you might not get the best mortgage terms possible, or that you might not be able to secure a mortgage loan at all.

How is Your Credit Score Calculated?

• Payment History: Have you paid your past credits on time? Payment history reflects not just whether you’ve made payments on time, but also how late any missed payments were, the amounts owed and how often late payments occurred. A consistent record of on-time payments helps build strong credit, while frequent or recent late payments can lower your score.
• Amounts Owed: Each source of credit comes with a credit limit. How much of your available credit are you using? Lenders like to see that you can responsibly use credit and pay it off, too. A general rule of thumb is to keep your credit utilization ratio below 30%.
• Length of Credit History: Credit score calculations take into account how long you’ve had your oldest and most recent credit accounts open. In general, having a longer history of credit in good standing is better for your score.
• New credit: How often have you applied for new credit? Opening multiple new credit accounts in a short time can be a red flag to lenders, especially if you’re new to credit.
• Types of credit: How many types of credit accounts do you have? Lenders prefer to see that you can handle different types of credit responsibly and reward a mix of accounts like loans and credit cards. Examples of types of credit accounts include credit cards, mortgages, home equity loans, auto loans, student loans and personal loans.

Lenders use your credit score as a part of the mortgage approval process to determine your creditworthiness when applying for a home loan. 

How Your Credit Score Affects Your Mortgage Rate

Your credit score is a key factor mortgage lenders use to determine:

• Mortgage approval: Higher scores increase your chances of getting approved for a mortgage.
• Interest rates: Lower scores often mean higher interest rates, which can cost you thousands over the life of a loan.
• Loan terms: Some home loan programs have minimum credit score requirements you must meet to qualify.

What Credit Score Do You Need to Buy a House?

• 300-579: Very high-risk borrower. Unlikely to qualify for a home loan, making it difficult to secure financing for home ownership.
• 580-639: Possible approval, but expect high interest rates and fees, especially for conventional loans.
• 640-699: Qualified for a home loan, but not the best mortgage rates available.
• 700-749: Strong borrower with access to good interest rates and more home loan options.
• 750-850: Excellent credit! You’ll qualify for the best interest rates and loan terms.

How Credit Scores Affect Your Mortgage Loan Beyond Just Approval

Your credit score doesn’t just determine if you get a mortgage—it impacts:

• Down payment requirements: Borrowers with lower scores may be required to make a larger down payment.
• Private Mortgage Insurance (PMI): If your credit score is low, lenders may require PMI, which increases your monthly payment and overall loan cost.
• Loan limits: Certain loan types have specific borrowing limits that may be affected by your credit score.

Your credit score plays a crucial role in your home buying journey. A higher credit score not only improves your chances of getting approved for a mortgage but also helps you qualify for better loan terms, lower interest rates and reduced upfront costs. Understanding how credit scores affect mortgage rates and approval allows you to make smarter financial decisions before buying a home.

Ready to take control of your credit? Click Here before you start looking. Not only do real estate agents prefer working with pre-qualified buyers; you will have more negotiating power and an edge over homebuyers who are not pre-approved.

How Much Down Payment do You Have?

Coming up with enough cash for a down payment to buy a house can be the single biggest roadblock for prospective home buyers.

But how much of a down payment do you really need? That depends on the type of loan, your lender and your priorities.

What is a down payment?

When applying for a mortgage to buy a house, the down payment is your contribution toward the purchase and represents your initial ownership stake in the home. The mortgage lender provides the rest of the money to buy the property.

Lenders require a down payment for most mortgages. However, there are some types of loans backed by the federal government that may not require down payments.

Minimum down payment requirements

You may have heard that you need to make a 20% down payment on a home, but that's really just the threshold many lenders use for requiring mortgage insurance on a conventional loan.

You don't have to make a 20% down payment to buy a house. In 2021, the median down payment for all home buyers was 13%, and the median for first-timers was 7%, according to the National Association of Realtors.

The minimum down payment required for a house varies depending on the type of mortgage you're planning to apply for:

• 0% down. Guaranteed by the U.S. Department of Veterans Affairs, VA loans usually do not require a down payment.

  VA loans are for current and veteran military service members and eligible surviving spouses. USDA loans, backed by the U.S. Department of Agriculture's Rural Development program, also have no down payment requirement.

  USDA loans are for rural and suburban home buyers who meet the program's income limits and other requirements.

• As low as 3%. Some conventional mortgages, such as HomeReady and Home Possible, require as little as 3% down. Conventional loans are not backed by the government, but they follow the down payment guidelines set by the government-sponsored enterprises — or GSEs — Fannie Mae and Freddie Mac.
• As low as 3.5%. FHA loans, which are backed by the Federal Housing Administration, require as little as 3.5% down if you have a credit score that's at least 580. If you have a credit score that's between 500 and 579, FHA loans require a 10% down payment.
• As low as 10%. Jumbo loans are home loans that fall outside of the Federal Housing Finance Agency's conforming loan limits. Because these outsized loans can't be guaranteed by the GSEs, lenders tend to ask for higher down payments in order to offset some of the risk.

Benefits of a larger down payment

Saving enough money for a substantial down payment takes time, so a zero- or low-down-payment requirement may speed up your ability to buy a home. But making a larger down payment has advantages, which include:

A better mortgage interest rate. Lenders may shave a few fractions of a percentage point off of your interest rate if you make a larger down payment. When you borrow less of the home's price, there's less risk for lenders, and they tend to reward this with more favorable terms.

More equity in your home right away. Your home equity is your home's value minus the amount you owe on your mortgage. In other words, it's the extent to which your home is an asset rather than a debt. More equity means more wealth.

A lower monthly mortgage payment. Borrowing less of your home's price lowers your principal, which also means you'll pay less interest over the life of the loan.

Lower upfront and ongoing fees. Low- or no-down-payment government-backed mortgage programs reduce lenders' risk by guaranteeing a portion of the loans. If a borrower defaults on one of these loans, the associated government agency will reimburse the lender. In order to offset some of that cost, these loans can come with significant one-time costs, like the VA funding fee, or added ongoing costs like FHA mortgage insurance.

A lower down payment can get you to your goal of homeownership more quickly, but a higher down payment might cost you less overall. With low- or no-down-payment loans, you pay for the guarantee through fees or mortgage insurance, depending on the program.

Conventional mortgages usually require you to pay for private mortgage insurance if you put down less than 20%. Trying out some different scenarios with a mortgage calculator that includes PMI can help you better understand how changing the size of your down payment can affect other costs.