Want to know how to improve your credit score for a home mortgage application? Many would-be home buyers encounter difficulty obtaining a home mortgage due to their credit score. We’re here to help you with some tips to boost your credit score and ensure you get the lowest possible interest rate.  We have compiled some of the most important and fastest tips to improve your credit score in preparation for submitting a home mortgage application.  Maintaining a good credit score is critical for home financing including first mortgages, second mortgages or refinancing to get better interest rates.

I recall the confusion I experienced as a first-time homebuyer when I was purchasing my first home. I wish I had known the following information about credit scores and how to prepare for a mortgage application. As a real estate investor, I still face numerous challenges as lenders tend to be even more strict when applying for investment property loans. In this article, I will provide my top tips and tactics for building your credit score prior to applying for a home mortgage.

Mortgage Application Factors

Your mortgage lender will look at three primary factors when evaluating your home loan application. First is that you have a steady, verifiable source of income. Second, you have adequate funds to make a down payment without borrowing money. Third, you have a solid credit history that demonstrates your ability to pay over time. With this in mind, we will discuss our top tips to improve your credit score fast and ensure the best possible interest rate on your home mortgage.

Tips to Improve Your Credit Score Fast

Your credit score is a significant factor when it comes to securing a mortgage. It can determine whether you’re approved for the loan and the interest rates you’ll receive. Therefore, improving your credit score is crucial when you’re planning to apply for a mortgage. Here are some fast tips to help you improve your credit score:

1. Review Your Credit Reports

The first step in improving your credit score is to know exactly where you stand. You can obtain a free copy of your credit reports from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once every 12 months at AnnualCreditReport.com. Review each report carefully and make sure all the information is correct.

2. Dispute Any Inaccurate Information

If you find any errors on your credit reports, it’s essential to dispute them as they may be negatively impacting your score. This can be done online through each credit bureau’s website. They are legally obligated to investigate the dispute within 30 days. If the information is found to be inaccurate, the bureau must correct it.

3. Pay Off Any Delinquent Accounts

Delinquent accounts, meaning those that are overdue, can significantly hurt your credit score. If you have any such accounts, pay them off as soon as possible. Remember, the longer a bill goes unpaid, the more it can damage your credit score.

4. Make On-Time Payments to Bury Past Delinquencies

Even if you’ve had delinquencies in the past, you can improve your credit score by making all your payments on time moving forward. The impact of past credit problems fades as time passes and as recent good payment patterns show up on your credit report.

5. Reduce Your Debt-to-Income Ratio

Your debt-to-income ratio is another key factor that lenders look at when considering your mortgage application. It’s the percentage of your gross monthly income that goes towards paying your debts. Reducing this ratio can help improve your credit score. You can do this by either increasing your income or reducing your debt.

6. Review Your FICO Score

While reviewing your credit reports, also check your FICO score. This score is used by many lenders to determine your creditworthiness. Knowing where your FICO score stands can give you a better idea of what loans you may qualify for. If your score is lower than you’d like, use the above tips to start improving it.

7. Be Mindful of Your Credit Utilization Ratio

The credit utilization ratio is the percentage of your available credit that you’re currently using. It’s a significant factor in calculating your credit score. Keeping your credit utilization ratio under 30% can positively impact your credit score. This means if you have a credit card with a limit of $10,000, try not to carry a balance of more than $3,000 at any given time.

8. Don’t Close Old Credit Accounts

The length of your credit history also affects your credit score. Even if you don’t use a credit card anymore, it’s usually a good idea to keep the account open as long as it’s not costing you unnecessary fees. Closing an account can lower your available credit and increase your credit utilization ratio.

9. Diversify Your Credit Mix

Lenders like to see a mix of credit types on your credit report. This can include credit cards, auto loans, mortgages, and student loans. While it’s not advisable to take on new debt just to diversify your credit, having more than one type of credit can be beneficial.

10. Limit Hard Inquiries

Whenever you apply for credit, a hard inquiry is recorded on your credit report, and it can lower your credit score. Multiple hard inquiries in a short period can cause more significant damage. If you’re shopping for a loan, try to do so within a short period to limit the impact of hard inquiries.

11. No New Debt!

Finally, try not to incur any new debt while you’re working on improving your credit score. This includes opening new credit cards or taking out new loans. Adding more debt will only make it harder to improve your credit score and could potentially make you less attractive to lenders.

Improving your credit score may take time and patience, but the benefits are worth it. A higher credit score can help you secure your mortgage at a lower interest rate. Start using these tips today to begin improving your credit score and increasing your chances of getting a great mortgage deal.

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Here are my first time homebuyer tips for getting mortgage approval. The Salem area real estate market has been heating up in recent years and many new homebuyers find it difficult to qualify for a mortgage. Lenders seem to have learned a lesson from the 2008 housing bubble and have tightened lending requirements. Fortunately, you can still take steps to qualify for your mortgage and get the best interest rates available.

My first tip for the first time homebuyer is to consult in advance with a good mortgage broker who will shop multiple lenders to find you the best mortgage opportunity. Contact me if you need a local area referral. Often, you can get referrals from trusted family members, friends or associates who have recent experience with local area mortgage brokers. By using my tips along with the advice of a mortgage broker you will be much more likely to qualify for your first home mortgage.

By: Loni Barrett
www.IBuySalem.com

First Time Homebuyer Advantages

The first time homebuyer is a buyer who has not owned a principal residence for at least three years. This means you have to meet this requirement in order to qualify for first-time homebuyers benefits. The first time home buyers program provides several first time homebuyer advantages that will ease the financial burden of your first purchase. As a first-time homebuyer you have some advantages put in place by the government.

One of first-time homebuyer advantages is the first time homebuyer tax credit. This first time homebuyer deduction offers a one-time refundable tax credit up to $8000 in additional income when you buy your first home through the first time homebuyers program. The State of Oregon has a comprehensive web page with more information about the Oregon residential loan program. The Oregon Bond Residential Loan Program provides a below-market rate to help eligible families increase their home purchasing power and lower their monthly house payments.

In summary, you may find substantial savings by buying a home through the Oregon Bond Residential Loan Program. As a first time homebuyer you may qualify for low down or no down payment financing, lower interest rates and possibly some assistance on closing costs. Lending requirements for first-time homebuyers are a bit more relaxed. A mortgage broker can help you sort out what is available for your specific situation.

Oregon First Time Homebuyer Program (Video)

More information: Oregon Bond Residential Loan Program

First Time Homebuyer Income Tips

Establish a solid income source at your job. Banks like stability. Generally, the banks like to see at least 2 years of income history. FHA loans (most likely for a first-time homebuyer with low down payment) may require at least 6 months at a current job if there are employment gaps. You may include any other sources that relate to home ownership such as alimony, child support, rental income and part time job income. Including these additional items will help boost your overall household income level for home mortgage qualification purposes.

First Time Homebuyer Credit Score Tips

First time homebuyers will generally need a credit score of at least 630. The closer your score is to 700+ the better. Higher credit scores will get better interest rates. Alternately, lower scores will get lower interest rates which can cost you tens of thousands of dollars over the life of a loan. Watch your credit using CreditKarma.com or a similar credit score monitoring service closely. Contest anything negative that you possibly can. Pay every bill on time.

Negative Information on Credit Score

Pay attention to any factors that negatively impact your credit score. If you have negative information on your credit score such as late payments, charge-offs, bankruptcies, collections, etc., you will obviously want to take action. Pay any delinquent accounts and keep them paid current. However, it is not always advisable to pay off charge-offs and some other negative accounts. I recommend speaking with a mortgage broker first, before paying any charge-offs or collection agency accounts.

Credit Usage

Pay down your bills. If your credit usage is high it will drag your score a lot more than you might think, even if all payments are being made on time. The banks will look at your total credit limit. Say you have a $10,000 credit limit. If you have $5,000 charged on the card then you’re using 50% which is too high. For the best credit score, you want your credit usage around 10% or less. That means low balances on any credit cards, loans, etc.

First Time Homebuyer Income to Debt Ratio

Be aware of your income to debt ratio. The fewer debts you have, the more of your income can go toward paying your mortgage payments, allowing you to afford a higher-priced home. Paying off or paying down all bills will help with your income to debt ratio. Most lenders want to see that you will be spending less than 28% of your pretax income on housing and 36% on total debt payments. This is not a hard rule and you may still qualify, but this income to debt ratio will be a good target to keep in mind as you prepare to buy your home.

Work with a Mortgage Broker in Advance

I always recommend meeting with a mortgage broker well in advance of your decision to purchase a home. Mortgage brokers will agree that they can help set you up for easier approval, possibly at lower interest rates, if you meet with them in advance and follow their recommendations. This was one of the best pieces of advice that I received when I was buying my very first home.

If you are utilizing the Oregon First Time Homebuyer Program, you will be directed to a list of authorized lenders. If you are qualifying for FHA, VA or conventional loans will may work with a mortgage broker in advance. Choose a broker who shops more than one company. For example, I would avoid going into Wells Fargo to ask for a loan. Instead, go to an independent mortgage broker who has access to a number of banks that lend on real estate.

Go in now and have them run a check on you. They can tell you exactly what you need to do to qualify and give you a prequalification amount you will be eligible to borrow for your home purchase. The mortgage broker can also discuss different scenarios if you foresee a change in your income or credit situation or if you want to consider a co-borrower such as your spouse.

First Time Homebuyer Tips: Down Payment

Start saving money for your down payment. I suggest preparing for the worst (paying the 5% down plus closing costs) just in case. Expect a down payment of 5% of the purchase price, plus a couple thousand for miscellaneous fees like the appraisal, inspection, etc. If you end up with more than is actually needed to buy your home then you’ll have some extra cash to buy furnishings or something else.

First Time Homebuyer Tips: Budgeting

Put yourself on a strict budget. Lock away some of your income to savings. You might consider selling unnecessary belongings and putting that income into your savings account. Work overtime. Lock it away and don’t touch it because you never know when the perfect deal will come along. You can also pull money from an investment account for your down payment but just be mindful of any tax consequences if you do so.

Private Mortgage Insurance

You will be required to pay Private Mortgage Insurance (PMI) if your down payment is less than 20%. PMI is calculated based on your down payment, credit score and size of the loan. While I see PMI as scammy on the part of banks, it is part of the system. You’ll either be required to put 20% down payment or carry PMI.

A PMI workaround is to try to buy your home so you will gain equity as quickly as possible. You should do this anyway! Perhaps a fixer-upper or just buying at the right price can be helpful. After making your payment for a year or more then you can qualify to refinance your home. If the appraised value is 20% more than the amount you are refinancing you can drop PMI.

More Salem Area Home Investment Articles

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Home Lease with Option to Buy
by Loni Barrett, real estate investor

Why Lease-to-Own Instead of Renting?

There are some major benefits to leasing a home rather than buying one now, especially if you’re presently unable to qualify for a mortgage. Be sure to consult your mortgage broker to review your specific circumstances. You may qualify to buy now. If not, a home lease with the option to buy later may be a great solution for you as you can reserve the home for later purchase with no competition.

Build up your down payment over time

You begin building equity in your home from the moment you move in. Rather than having to put down a large down payment that is required for a home purchase, you can instead let your down payment build up over time. You will put down an earnest money deposit to hold the home. Make sure you understand whether the homeowner intends to credit your deposit toward your down payment at the time you exercise your option to buy. Additionally, be sure you understand how much of your monthly payments will be applied to the purchase down payment as well. Frequently, the owner will allow you to determine the monthly amount of these payments during the negotiation of the lease-to-own agreement.

Avoid competition for your dream home

Your earnest money deposit locks your ability to purchase the home after a specified period of time. The price is usually based on a pre-determined price at the time of the initial lease. You avoid competition because you are the only buyer. Even in a competitive housing market, you will have no competition! Be sure you understand the lease agreement terms and what the price will be when you exercise your option to buy.

Save money on fees

You will only pay the predetermined price for the home, less the amount of your earnest money deposit and monthly down payment allowance. There will be no additional realtor fees and sometimes the owner will even cover the closing costs. Look for this information in your lease agreement.

Time to build up your credit

You will not be required to pass a mortgage credit check at the time you lock in your lease with the option to buy. Perhaps you’re still paying down some debt, or you are waiting for negative credit data to fall off your report. Whatever the reason, you can use the duration of the lease option agreement to build your credit up. I will publish a helpful checklist of credit score factors, credit resources and tips to help improve credit score. I want you to be able to buy your dream home!

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