Buying your first home can be an exciting and stressful time as you navigate the process from beginning to end. As soon as you decide to begin the buying process and have hired a real estate agent to work with you, here are some additional tips you can work on to improve your financial situation and secure financing with a mortgage broker to buy your home.
Check Your Credit
If you don't know the condition and status of your credit, now is a good time to check it. You can request a free copy of your credit report once each year from each of the three credit bureaus. The three credit bureaus companies includes Equifax, Experian and TransUnion. Each one has their own website, where you can request your credit report and score. If you don't have access to a computer, call each company and request your credit report over the phone and they will mail you a copy.
Once you have requested and have a copy of your credit report, look it over to make sure everything on it is reporting correct. This includes checking your your name, date of birth, address, social security number, and all accounts that are reporting on your file. Look to make sure they are showing the correct payment history and if each account is open or closed.
If there is any information incorrect on the report, file a dispute with the credit bureau company. Once you file a dispute they will investigate the claim and correct it for you. If you never check your credit report, there may be erroneous information or fraudulent accounts showing on your file that can adversely affect your credit score and you will not even be aware of it.
It is important to begin this process some time before you want to buy a home. Any errors can take time to correct and update, as the credit bureaus usually update your file every 30 days.
Pay Off Unsecured Debt
The manner in which you pay on your loans on time or late each month can affect your credit for good or bad. In a similar way, the type of credit you have in your name can also affect your credit score. For example, having too much unsecured debt can lower your credit FICO score.
Unsecured debt is any type of loan that is not backed by an asset, such as a vehicle or a home. Credit cards are unsecured debt and can negatively affect your credit because a credit card allows you the freedom to pay it off and charge it up again. Your mortgage underwriter will look at any unused credit cards as potential debt, as you have the potential to go out tomorrow and charge up an entire credit card.
Your mortgage underwriter needs to make sure your income will cover all your current debts and obligations along with your new mortgage. For this reason, it is a good idea to pay off as much unsecured debt as possible. Talk to your mortgage broker about your credit situation and they can recommend an balance payoff strategy.
Also, take a look at the total balances you owe on your combined credit cards compared to the total credit lines available. Only utilizing a portion of your available credit can improve your credit score, as you have not maxed out all your credit card balances. For example, if you have a credit card with a limit of $2,000 and a balance of $500, and a second credit card with a limit of $5,000 and a balance of $200, you owe $700 on a total combined credit limit of $,7000. As you are only utilizing 10 percent of your credit, this will help improve your credit score.