Turning the key to your OWN home is an amazing feeling. But before you start browsing real estate listings, make sure your credit is in good shape. Lenders look closely at your score, and it directly impacts the mortgage rates you qualify for.
Why Does My Credit Score Matter for a Mortgage?
Proof of Reliability: A long history of managing credit responsibly shows you're likely to pay your mortgage on time.
The Risk = The Rate: Lenders tier their interest rates. The better your credit, the less you'll pay over the life of your loan.
Big Impact of Small Differences: Even a small difference in interest rates can translate to saving (or spending!) tens of thousands of dollars over a 30-year mortgage.
What Mortgage Lenders Look For
Long Credit History: Ideally several years of accounts in good standing.
Low Utilization: Keep credit card balances low relative to your limits.
On-Time Payment History: This is HUGE, even one late payment can hurt.
Debt-to-Income Ratio: Lenders want to see enough income to comfortably cover your mortgage and other debts.
Strategies for Homeownership-Focused Credit Improvement
Pay Down Debt: Focus on high-interest credit cards to lower your utilization quickly.
Dispute Errors Early: Don't let inaccuracies drag down your score.
Avoid New Inquiries: Hold off on applying for other credit cards or loans in the months leading up to your mortgage application.
Start Planning NOW: The earlier you focus on building excellent credit, the better your rates will be when you're ready to buy.
Additional Factors for Mortgage Approval
Down Payment: The larger the down payment, the more secure the loan is for the lender.
Income Verification: Proof that you can afford the payments.
Don't Get Discouraged: Even if you don't have perfect credit today, there are mortgage options. The better your score, the more favorable your terms will be.
Next Time... We'll discuss what matters for credit scores when your goal is buying a car!
Glossary
Mortgage: A loan specifically designed for purchasing a home.
Debt-to-Income Ratio: How much debt you have compared to your income. Lenders want to see you're not overextended.