4 Credit Mistakes to Avoid Before Buying a Home
Your credit score is one of the most important factors in obtaining a mortgage. If it's your first time buying, it can be easy to unknowingly make a mistake that puts a wrench in your home buying plans. Whether you are buying a home this year or simply plan to buy sometime in the future, here are 5 credit mistakes to avoid before buying a home.
Your payment history weighs heavily on your credit score. Missing even one payment can drop your score. Missing multiple payments will lead to an even more noticeable drop. Think of it this way,...if you don't make your existing payments on time, how likely will you make your mortgage payments on time? This is precisely what lenders will think. Therefore, it's essential that you make all payments on time.
Applying for New Credit
Taking on additional debt is one of the most important credit mistakes to avoid before buying a home. Applying for new credit cards or loans impacts your mortgage qualification in two ways. First, too many credit pulls within a two year period can reduce your score. Secondly, additional debt can throw off your income to debt ratio, which means you will qualify for less of a mortgage. Unless, you absolutely need to, avoid taking on additional debt as you prepare to buy a home.
Not Correcting Errors on Your Report
Errors on credit reports are fairly common. If you haven't checked your credit report recently, it's a good idea to do so. This will give you time to correct any errors and allow your score to bounce back before applying for a mortgage.
Co-signing for Someone Else
Co-signing a loan or mortgage for someone else can be a very generous act. Unfortunately, it can hurt your chances of getting your own home loan. The payment history on that loan will be reported against your credit report, so it's treated just the same as a loan where you are the primary borrower. Any late payments or defaults will therefore hurt you. Additionally, that debt may be included in your income-debt ratio. Depending on how high the payment is, it could change your ability to qualify for your own loan.
Summary of Credit Mistakes to Avoid Before Buying a Home
The above mistakes are not easily corrected. This makes it even more important that you avoid them if possible. By educating yourself on important credit factors for mortgage pre-approval, you can position yourself to be a well qualified buyer. This saves you money by enabling you to qualify for better mortgage programs and lower interest rates.