[Guest post by Lindsay from TeacHer Finance]
Deciding to take the plunge into homeownership is a really big deal for a lot of people, and for good reason: purchasing a home is a huge commitment that few of us sign onto without serious consideration. After all the hemming and hawing about whether or not to buy or keep renting, many of us are so excited to dive right into house-hunting that we fail to pay attention to some – ahem – key details.
Of course, I’m talking about the all-important credit score, the little digit that has the power to determine so much about our financial lives. While most of us intellectually understand the power that our credit scores have over our ability to buy a house, many people fail to fully internalize just how detrimental just a few little money mistakes can be. This, of course, can sometimes lead to heartache and disappointment. After all, no one wants to hear that a few little financial flubs are standing in the way of their dreams.
So in order to avoid an unpleasant surprise in your mortgage broker’s office, be sure to avoid these three key credit mistakes as you’re embarking on the path to homeownership:
Mistake #1: Not Knowing Your Number
When you’re planning to make a purchase as big as home, you should have all the facts before you start shopping for a mortgage. This includes knowing what your credit score is prior to sitting down with the loan officer at your bank. If you do your research early, you’ll have a good idea of how qualified you are for a home loan and what type of interest rate offer you’re likely to receive.
In general, it’s unlikely your bank will lend to you if your credit score is below 650, and to obtain the best mortgage interest rate your digits will need to be above 720. Again, you don’t want to be hit with a nasty surprise when you’re applying for your loan, so go in ready to talk to your broker about your score and what it means for your mortgage application.
Mistake #2: Failing To Review Your Credit Report
Getting a mortgage means opening your financial records REALLY wide – before it extends you credit for a home, your bank is going to comb through your whole monetary past, including your credit report. This means that if your report contains any mistakes, it’s wise to clear them up before submitting your mortgage application. But there’s no way to know if there’s a mistake on your credit report if you don’t check it first!
Request a credit report from all three of the major credit reporting agencies and go over each carefully. If you spot a mistake, be sure to have it corrected – pronto!
Mistake #3: Shopping For New Credit
This is a common mistake that a lot of people make when they’re in the home stretch of the home-buying process; in a fit of excitement over the projects they’ll be doing on their new home and all the furniture and other décor they’ll need to buy, they open up a new credit card or two… before the mortgage paperwork is finalized.
This is a bad news because a bunch of new credit applications could cause your credit score to drop, and if your score drops too much before your home loan is in your hands, you could end up getting denied the loan at the last minute. Talk about a heartbreaker! So just remember, if you’re in the process of applying for a mortgage, don’t do any other borrowing.
Your credit has a huge impact on your ability to get a mortgage, so be sure to keep close tabs on it as you move through the home-buying process. Your future as a homeowner might just depend on it!
Lindsay writes for Quizzle.com, the only place on the web to get your free credit report and score
Photo credit: danielmoyle