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8 Credit Dos and Don'ts That Can Make Or Break Your Next Home Purchase

by Guest on Jul 15, 2013 Real Estate 1553 Views

Your credit report and scores are an extremely important part of qualifying for a mortgage to purchase a home. A few points in either direction or a derogatory credit item or two can mean a much better deal or the difference between qualifying and not qualifying. So it's important that you take care of your credit before you apply for the loan and during process of completing the loan.

If you're looking to take out a home purchase mortgage in the future, the following are some important "dos" and "don'ts" to keep in mind regarding your credit to help you get the best possible mortgage deal.

1) Don't let anyone run a credit report while your loan is in process. Lenders often will do a "light" inquiry or run a new credit report (if the old one has expired) late in the loan process, and if your scores have fallen because of new inquiries, it could change the loan terms or result in getting turned down.

2) Don't rack up more credit card debt or take on new debts. As I already mentioned, it's not unusual for lenders to check for new debts at the end of the loan process. If any come up, the lender will insist on including the payments in your debt-to-income ratio. Best case, this will be simply a hassle that delays the closing of your loan. Worst case, it could result in loan denial if your debt-to-income ratio increases beyond what is allowed under the guidelines. If you've racked up a lot more credit card debt, the lender may require an updated credit report. If your scores have fallen, if could change the rate and fees on the loan or result in it being denied altogether.

3) Don't cosign for anybody. If the lender discovers a newly cosigned debt, they'll include it in your debt-to-income ratio, even if somebody else is going to be making the payments. If your debt ratio is already near the maximum allowed, the new payment could result in loan denial.

4) Do continue making all your payments on time (home loan payments included). Lenders typically will check for late payments near the completion of the loan, and if any show up, it could result in loan denial.

5) Do unlock any credit report freezes before beginning the loan process. Credit freezes can take some time to clear, so be sure to remove them from all three major credit bureaus (TransUnion, Equifax, and Experian) before you apply to avoid delays that can result in lock extension fees down the road.

6) Do clear up derogatory items such collections, judgments, and charge-offs. Derogatory items in your credit file can drive down your scores and make it tough to get a good mortgage deal or even qualify at all. Before you apply for a mortgage, grab a copy of your report from the three major reporting agencies (Equifax, TransUnion, and Experian) and clear up any negative items reported. You can get a free copy of your report from once a year per federal law.

7) Do correct any HELOCs being reported as revolving accounts. If your mortgage lender is reporting a HELOC as a revolving account instead of a mortgage and the balance is over 50% of the limit, it could damage your credit scores. Make sure your lender is reporting your HELOC as a mortgage, not a revolving account like a credit card.

8) Keep your revolving account balances low. If you have high credit card balances, you could be seriously damaging your credit scores even if you pay your bills on time. Be sure to keep your balances below 30% of the limits even if you pay your bills in full each month.

Your credit file is super important to mortgage lenders because it basically serves as a report card for how you manage your money. If you manage your credit well, you'll be that much better equipped to get a great mortgage deal.

Wanting to buy a home, but have a BK or foreclosure in the past? Find out when you can get a mortgage after a foreclosure and bankruptcy.

Have a bankruptcy in your background? Find out when you can get a mortgage after bankruptcy.

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