If you've recently decided to take the plunge into homeownership, you might be wondering where to start the process, especially if you are a first-time homebuyer. Step one is to ensure you are financially ready to take on a mortgage.
Your credit score is an important piece of information lenders use to determine if you're eligible for a mortgage. To ensure your credit is in tip-top shape when you sit down to complete the loan application, follow these steps:
- Check for discrepancies on your credit report – Credit Bureaus make mistakes too, and it happens more often than you think – the FTC reports that nearly 25% of credit reports they examine contained an error. If there is a problem with your credit report – for example, it shows an unpaid loan you've paid off - you should report it as soon as possible since it could negatively impact your credit score.
- Have some credit lines open – If you have no credit cards or loans on your credit report, lenders have no way of knowing if you will pay your loan bill each month. Luckily, even if you have no credit history, North Country Savings Bank allows borrowers to show non-traditional credit, which includes paid utility bills or rent payments.
- Stop using credit – Avoid the temptation to make large purchases, such as new appliances or a new vehicle, while you're applying for a mortgage. These items can cause "hard inquires" on your credit report and increase how much debt you have, which can lower your credit score.
- Maintain low debt ratios – If you're using a credit card regularly avoid maxing it out every month. Mortgage lenders will analyze how much credit you are using compared to how much you have available to determine your debt/equity ratio. Instead, try making smaller purchases and pay them back on time each month.
- Be patient – Depending on all the factors mentioned above it can take months for your credit to improve. While you're waiting for your credit score to increase, continue building your savings, whether it's for a larger down payment or to cover closing costs.
Ready to take the next step in the mortgage process? Contact a Loan Originator at North Country Savings Bank or fill out an online application to get started.