January 29, 2015
Here's a list of some steps you need to take before you get into "home buying mode". First, you should know that you will need a credit score of at least 640 in order to qualify for a mortgage. If your score falls below that threshold, here are a few things you can do to improve it over the long term.
- Do not make late payments on anything. Pay all credit cards, car loans, utilities, current mortgage, and/or rent on time.
- If you don't have any established credit then you should open a secured charge card with a credit balance of $300 - $500 and charge only $10 - $50 a month on it. Then, be sure to pay the credit card off on time every month. If you do this several months in a row, your credit score will start to go up. Make sure the card you choose is one that gets reported to the credit reporting agencies.
- If you do have credit cards, make sure they're not "maxed out". The more of your available credit that you use, the lower your credit score will be. If you are currently carrying high balances, start aggressively paying them down.
- You will need at least 4 "trade lines" on your credit report. Any credit cards or loans that you've been actively paying off for 12 months and that appear on your credit report will count. If you do not have 4, you can give us alternative credit references such as cancelled rent checks, a letter from your auto insurance company, utility company, cell phone provider, day-care agency or Netflix account. If you are unable to get a letter, you most current statement might do the trick-but that's not a guarantee.
- Make sure that you are paying your rent with a check. You will need to provide 12 months of cancelled rent checks at your mortgage application.
- Pay off any collections BEFORE applying for your mortgage. If they are settled for less, that is okay - as long as they are paid off.
- Don't co-sign on a loan for anyone. Even if you are not making payments on the loan, it increases your debt-to-income ratio which negatively affects your credit score.
- Start setting money aside to pay for closing costs. Even financing programs that have no down payments require you to have some money set aside to pay for things like attorney fees, inspections fees, appraisals and the like. And, as you start setting it aside, don't start using it!
- Call a Premium Mortgage Loan Officer for further consultation