Have you made any of these 5 credit mistakes as a homebuyer?
You've been renting for awhile now and it feels like the timing is right to make the leap to homeownership, After all, your friends are all buying homes and your job feels pretty stable, how many more hints do you really need that it's time to settle down?
Well, if you've given it considerable thought, are certain you can cover emergency costs, like unexpected roof replacement or AC repair, and you have a realistic expectation of what you can afford, then full speed ahead. Buying a house is a trying experience, only made significantly worse by credit mistakes.
Top Credit Mistakes to Avoid When Buying a Home
Everybody makes mistakes, especially when it comes to their credit. The process by which your credit score is generated has long been veiled in shadows, making it doubly easy to misstep without even knowing it. However, there are certain mistakes homebuyers make again and again, including these items that are obviously impactful to your credit score.
- Not knowing what's in your credit line to begin with. The last thing you need is a bit of a surprise when you go to apply for a mortgage. If you have collections that you're unaware of, judgments that were never served to you or just plain bad information in your file, these items have to be handled now. It can take a while to completely erase the effects of any negative information in your credit file, so you need to get started on that right away. Go to annualcreditreport.com for your once a year free credit report, download it and print it out. Check it line by line for accuracy and contact any collection agencies that may be listed so you can work out a payment plan on that cable bill you left behind in your college apartment and totally forgot to pay.
- Applying for mortgages over a long period of time. Sure, it makes sense to pull your credit file six months to a year ahead of when you plan to purchase, since there might be surprises that will require time to fix. If you pull your scores yourself, it's not as big of a hit to you as it would be if you had a lender checking your scores, say monthly. When you are definitely ready to buy, do all your mortgage shopping within a 14-45 day window (depending upon the scoring model and version). Ask your lender how long credit inquiries for mortgages will remain grouped, only being counted as a single credit pull. Otherwise, so many hard pulls will ensure that you don't move forward to purchase a home.
- Opening new lines of credit in anticipation of closing. Did you give any thought to skipping the line and buying a nerw couch today, rather than after your closing? How about doing that while maxing out a brand new credit line? This is a HUGE and terrifyingly common mistake that people make. It makes sense, it really does, you just want to be ready to get your move over with quickly once you get the keys. The problem with a new inquiry is sort of a double whammy. First, it's a hard pull on your credit, which will reduce your score slightly. Secondly, if you use that credit line, your debt to income ratio will increase. In fact, depending on how much of that credit line you use, your utilization rate may also increase. So it's very important that you don't take out any new credit. Your credit score, debt to income ratio, and possibly your credit utilization will take a big hit and your loan may be denied at the last minute when underwriting is reverifying your application.
- Maxing out existing credit lines. Moving is reallly expensive, I know, even if you're just moving across town. The moving truck alone can cost hundreds of dollars, and that's if you do the job yourself. There's nothing wrong with renting a truck, hiring a mover or even hiring a whole lot of movers, just do it after closing. If anything changes to the negative about your credit score, credit utilization and your debt to income ratio, as I stated before, your loan can be denied.
- Failing to forward your bills. After closing, you could still make a few credit mistakes with problems related to your move. Did you remember to pay the last utility bills at your old residence? How about the cable bill? Make sure you change your address with the post office. It may seem like an obvious error to avoid, but when you're in that moving stress haze, sometimes it's all you can do to grab a pot of coffee and get moving again, Your credit is pretty good right now, don't forget to pay those final bills. Buying a house with a mortgage can feel like an exercise in paperwork collection, but the truth is that all of it is necessary for you to get the very best rate from your lender. After all, what they're really doing is trying to ensure your success with the loan. When you succeed, they succeed.
For more information on how to avoid credit mistakes if you're thinking of buying a home, give us a call at (813) 359-0880
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