- If you’re thinking of buying a home, you must find out exactly what your FICO score is. If you find it less than ideal, ask your Realtor or Lender how to improve it. Too many borrowers ignore this step and are surprised when they get interest rate quotes higher than they expected.
- Once you’ve reviewed your credit history and corrected any errors, your next step is to pay down revolving debt balances to no more than 30% usage. That will help raise your score significantly. See my posts: Simple Ways to Improve Your Credit Scores - Parts I and II for more tips.
- Why does it matter? The lower your score, the higher your costs of borrowing. Fannie Mae and Freddie Mac, for example, charge higher up-front fees to borrowers with credit scores below 740. For a buyer with a credit score between 680 and 700, the fee may come to 1.5% of the mortgage principal. On a $150,000 mortgage, that adds up to $2,250. Someone with a 740 score may pay nothing.
Buying a Car Just Before Buying a Home
- Anytime a person opens new credit accounts such as a credit card or auto loan, their FICO score could drop. As explained above, a lower credit score can mean more money out of pocket monthly.
- This will also affect what is known as your debt-to-income ratio, which is very important in the loan qualifying process. Your debt-to-income ration (DTI), it is the amount of money that goes out of the home to pay bills. If you have too much debt, such as credit card debit, auto loans, or student loans, you may not meet the ratio the lender is looking for and not qualify for the home loan.
Not Having a Home Inspection
- Buying a lemon when it comes to houses can cost you big bucks, so it is imperative to find all the costly flaws before you buy.
- Many homes on the market today are distressed properties — foreclosures and short sales — and that only increases the importance of a good inspection. Know what you are buying before you close on your next home!
- A home inspection can find problems with the foundation, electrical, plumbing, roof, attic insulation, and heating and air conditioning. Some licensed inspectors offer mold or termite inspections, too.
- Often homebuyers, who may be strapped for cash, scrimp on inspections and look for the cheapest way to go. That can lead to disaster!!! Most Realtors will advise you to get a home inspection. Would you buy a car without lifting the hood?
2804 E. 26th Street
Sioux Falls, SD 57103
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