10-Steps to Take When Pre-Qualifying for a Home
Buying your first home can seem like an illusion when you don’t have a coherent plan. Often, people assume reaching out to the REALTOR® is the first-step. However, this isn’t always the case. Getting a pre-approval can be easier than you think. The following steps lead toward pre-qualification, getting credit worthy for the home loan you need. If you’re ready, let’s get into this!
- Repair or Leverage Your Credit
- Download the Credit Karma App
- Pay Down, Not Off Your Credit Cards
- Hold Off on Making Big Purchases
- Avoid Activating Your Furniture Loan Early
- Contact Old Debtors and Negotiate for Pay Off and Removal
- Check ALL 3-Credit Bureau Agencies
- Pay Off Medical Bills or Plan
- Create a Document File for Easy Access
- Speak to a Loan Officer
“The Consumer Financial Protection Bureau (CFPB) says borrowers could save $300 per year on average by comparing rates from just three lenders.”~ Peter Warden with Mortgage Reports
Repair or Leverage Your Credit
It’s good to get at least three lender rates to compare. But hold on a second. It’s better to leverage your credit rather than shopping a rate. Many people will assume the three-digit score is enough to qualify for a mortgage. Loan officers research more than credit scoring to get a pre-approval. They will ensure you have a job. They want to know you are responsible and not in debt past the moon! The underwriters will do these checks multiple times before they complete the escrow process. In addition, they will look at your income versus debt (Debt to Income Ratio) to lend you money without draining the account. Someone can have a high credit score but have some scars on payment history. The good news, you can begin repairing by taking the next step.
Download the Credit Karma App to Monitor and Manage
One of the creative ways you can manage your credit score is to sign up for the Credit Karma App. You can find most of your credit issues on the app allowing you to create a score-card for eliminating debt. The other reason Credit Karma is an excellent alternative is to avoid dings on running credit. Done BEFORE pre-approval, you won’t risk multiple inquiries causing your score to go down. The other benefit, you can set up notifications, alerting you of changes with the score. You can also see an accurate reading to know what to pay. Be sure to pay DOWN those credit cards first.
“If your lender uses FICO 9 or the Vantage Score 3 scoring model, paid or settled collection accounts won’t affect your credit score. FICO Score 8 and 9 also don’t consider collection accounts if your original balance was under $100.” ~ Mortgage Reports
Paying Down Your Credit Cards without Paying Off
Don’t assume paying OFF your credit card is better than paying it DOWN. Card holders max-out their credit cards, reporting to agencies like FICO and Experian. However, paying off the card can hurt more than help. Wiping out the debt altogether may erase the payment history of that account and banks like longevity. Rather than paying off the card, pay it down to reflect payments are current, proving you’re responsible. Once you pay DOWN the card to the minimum, you’ll notice your score will change immensely and may be all you need for an approval.
Hold Off on Making Any Big Purchases Such as a Car
When getting a pre-approval on a home loan take caution making big purchases such as a car. Auto dealers make multiple hits, shopping for the lowest rate, which will lower your FICO score. Some inquiries can stay on your credit for up to 10-years. Ensuring you have a solid credit rating is highly advisable prior to signing up for a home loan. Although shopping for a car may be necessary, hold off till after buying the house. Also, making big purchases can spook a loan officer in the event you’re looking for a mortgage. They don’t want to think you’ve gone mad taking on too many payments.
Avoid Paying Furniture Loans Before Your Payments are Due
Many furniture companies offer incentives such as “Buy Now, No Payments till 2025.” If you make a payment prior to the 5-year due date, you could damage your credit. The way this works: The furniture financing company doesn’t activate your payment schedule till the actual date agreed upon. Unless you pay prematurely. That first payment activates the account voiding out the original due date. After the payments start, you MUST complete without skipping or waiting till the 5-year maturation. Avoid making the mistake of making those payments ahead of time unless you’re ready to keep paying monthly or pay the loan in full.
Contact Old Debtors and Negotiate
Sometimes, you may find an old ding still reporting on your credit. You may contact them directly, asking to remove the debt from your credit report. If the item is over 7-years-old, they may remove it upon request. Be cautious as they may renegotiate, but also reactivate the debt at new terms. Be clear what you’re asking and also send them the same request in writing. Remember, most of these companies will try to recover any money owed, even when past the 7-10-year window. In addition, don’t expect it to drop off in minutes. This is something that can take up to 3-months to report or remove entirely.
Don’t Forget to Check All 3-Bureaus
They do NOT list ALL items on EVERY credit report. Be sure to check the three agencies to ensure you’re getting the facts. Experian, Equifax and TransUnion are all different working on a variety of your consumer reporting. In addition, you’ll want to check with Clarity Services and ChexSystems for issues with bank reporting statements. Some people are unaware of previous bank accounts balances such as overdrawing. In some cases, consumers didn’t know they had problems such as a bounced check, which surprised them when trying to qualify for a home loan.
The Least You Should Know About Paying Off Medical Bills to Buy a Home
Mortgage Reports say, paid, and unpaid medical collections can still influence your qualification. Sometimes Fannie Mae will ignore dings, but it is a gamble as the FEDS change regularly. However, not all loans are built the same; where these debts create issues. Ask your loan officer or mortgage professional what the current requirements are, then follow their advice.
Get Your Documents Ready for Reviewing
Responsible homeowners and first-time-buyers create files both electronically and hard copy to store documents. You’ll make your life easier if you start a file with all the docs to keep on hand in the event you’re asked to show proof of anything. Take photos with your cell and save in your electronic file. Some items to include in this mega-file would be your tax returns for the last 2-4 years. Pay stubs, Bank Statements and Asset Accounts like IRAs are all file cabinet worthy. Social Security cards, Visas and Photo Identifications are also good to keep in this file. Buy a lock box for additional security as this is valuable and personal information.
Wouldn’t it be Nice to Pay the Bank, instead of the Landlord?…asking for a friend.
Finally, speak with a Loan Officer to Get a Pre-Approval
Once you’ve followed the steps of cleaning your credit and preparing for a mortgage, you’ll want to address with a loan officer. An experienced lender will guide you with your best plan of attack on credit worthiness. I can’t tell you how helpful these professionals are for giving proper advice. As a team, you and I both rely on them for the best results.
If you take these simple steps to leverage your credit rating, you’ll get closer to an approval. Once you have that pre-qualification, then hire your agent. The REALTOR® is just as eager to show you properties as you want to look at them. One last big point to make, you’ll be given the dollar amount appropriate to your loan qualifications. Starting at this point is the best and will bring you the BEST results.
If you’re looking to buy for the first time, I’m happy to walk you through the process. Text or Call the number below.