Buying a home is the largest purchase most consumers will ever make. It is not only important that you find a home that you want to buy, but you find a home that you are qualified to buy. My journey to buying a home began at a very young age.
I always knew that my credit score was important, and I religiously checked my score and report for errors. I also made sure that my income justified the purchase of a home and I wasn't obligated in too many other areas. Here is what I did to increase my score.
Cleaned Up My Past
The first step in my home buying journey was to make sure that there weren't any negative marks against me on my credit report. You aren't just looking for missed payments or collection accounts, you are also looking for errors. What if a bill you paid off did not show as being paid off?
These types of errors could keep you from getting a mortgage and will drag your credit score down. Go through your credit report with a fine-tooth comb to find anything that could affect you negatively. Once you have cleaned up your past, within months your score should have grown immensely.
Reduced My Obligations
The next step in my home buying adventure came when I started to look at where my money went every month. I needed to make sure that I wasn't obligated to too many other creditors and I could afford the incoming house payment. I had a car payment and two credit cards, but I needed to make sure they weren't maxed out and the car was not more than I could afford.
I had to pay down the balances on those cards to make my debt to income ratio more attractive to the mortgage lender. Luckily, my car wasn't excessively expensive and fit into my budget well. Lenders are looking to make sure you can afford a home, and paying these balances down made sure of that.
Created A Budget
While my other actions directly affected my score, this step helped to make sure I wasn't getting more home than I needed or could afford. I needed to budget out my monthly expenses and try for a mortgage had a payment less than a third of my monthly income. Buying a home means buying into a lot more responsibility, so make sure you have a budget that accounts for what the home needs.
Know Your Score
After cleaning up my past and paying down balances, I came back and checked my score and report one last time before applying for a mortgage. It is very important that you don't go into a meeting with a mortgage lender and be surprised by what is on your credit report. Luckily, I had done all the dirty work beforehand.
When I sat down with my mortgage broker, we discussed terms and rates, but more importantly, I knew I was prepared to be a homeowner. I had built my credit score to a very respectable number that meant I could confidently walk out knowing I had the best rate.
Shop With Purpose
With all the hard work of growing and maintaining your credit score, you also want to make sure you shop around for lenders within a short time frame. Applying for credit can affect your credit, and if you are shopping infrequently, it can hurt your score. I personally shopped three brokers before finding the best fit for me, all within a couple weeks.
Your credit score will affect every aspect of the home buying experience and hopefully, the tips I used to grow my credit score helps you. Being a homeowner is an exciting and fun adventure, just make sure you are financially prepared.