Step-by-Step Series #1: Financing Your New Home Purchase – Are You Financially Fit?
More than half of homebuyers borrow money to make their purchase. If you are considering a new home purchase, one of the first steps is a careful evaluation of your financial fitness.
Lenders determine loan amounts and interest rates based on a borrower’s FICO® scores. Everyone has three FICO® scores, one for each of the three credit bureaus—Equifax, Experian, and TransUnion. Several factors influence your FICO® score, including your income, types of credit used, and payment history on credit accounts. Though FICO® scores range from 350 to 850, borrowers with a score of 760 or higher are considered excellent credit risks and usually get the best mortgage rates.
If a new home purchase is in your future, you can take these steps now to improve your creditworthiness and increase your chances of getting a great mortgage rate down the road:
Keep a stable job. If a financial institution knows you have a regular paycheck coming in, it will increase your chances of getting a loan with them.
Pay your bills on time. Get a great start on building a good credit history by having your phone and utility bills in your name and paying your bills on time every time.
Keep credit card accounts open. Credit scores favor long credit history, so closing an account can reflect negatively on your credit score.
Avoid excessive credit purchases. Lots of major purchases on credit can make lenders wary of giving you more money.
Every borrower benefits from taking these steps, but they are essential for borrowers who are already in the process of purchasing a home, says John West, Director of Retail Loans at Direct Lenders LLC in Kennesaw, Ga.
His best advice to homebuyers?
“Don’t have any 30-day late payments. Put off buying a new car or opening new credit card accounts. And don’t quit your job. I have had clients quit jobs to search for new ones in the midst of closing on a home. On the day of your closing, your lender will check to see if you’re employed, and we will stop the loan if you’re not.”