Are you looking to buy a home?
Your first thought may be to get online and start looking at houses, call a Realtor friend you know to help you, or even to pay a visit to your local mortgage broker. While all of those things will be tackled in due time, the very first step you should take when thinking about buying a home or taking out any new loan is to make sure your credit score is up to par.
There are some huge direct and indirect benefits to having a great credit score during the entire home buying process, from managing your savings and getting out of debt all the way to being approved for that low interest rate mortgage.
In fact, keeping a high credit score will not only save you a whole lot of money, but it will help you in many other ways during the home buying process.
Here are 10 ways a high credit score will help you buy a house:
1. It can help you get out of debt
The first thing you should do if you want to own a home – or with any important financial decision – is to sit down and take stock of your finances. That includes making an accurate budget, as well as gauging where you are with debt. In fact, those credit cards, auto loans, and even student loans will hurt you when it comes to home buying in two ways. The monthly payments from a high debt load will cut into your Debt-to-Income ratio (DTI), making it harder to qualify for a home loan, and those payments will also make it harder for you to afford to write a check to the mortgage company every month.
Eliminating as much “bad debt” as possible is a good place to start when you’re looking at a home purchase in the future. While not a direct cause and effect, having a good credit score can help that process as you’ll be able to consolidate or move balances to lower-interest cards or loans, therefore paying it off faster, and your cards and creditors may even be willing to negotiate lower payments or better terms if they see you’ve been a responsible borrower.
2. You’ll be able to save money…
Once your debt is under control, it’s time to start saving. How can a good credit score help? If it can help you get out of debt faster, consolidate accounts, or end up with better rates and terms on credit cards and loans, that will save you money every month…which you can allocate towards your savings instead of paying debt.
In fact, financial experts like Dave Ramsey advocate the Snowball Method of getting out of debt and then turning that freed-up money into a sizable savings account!
3. Which helps you amass a down payment
Now that we have some financial momentum rolling in your favor and your savings is building up (thanks in some small way to your good credit score), it’s time to put money aside every month. This will serve as assets to show the bank when it’s time to get a mortgage loan approved, as well as the money you’ll need for a down payment on the house.
4. Get a clean pre-qualification
We’re finally getting into the meat and potatoes of how credit score can directly affect your home buying mission. Your first step to home hunting will be to talk to a mortgage broker, who will need to prequalify you for a loan. By having a great credit score, you make it way more simple and easy for them to predict a loan approval and map out what programs and rates are available to you, as well as exactly how much house you can afford and what your approximate payments will be.
5. Better lender letter with your offer
Did you know that you’ll submit a pre-qualification letter from your mortgage broker along with the purchase offer when you try to buy a house? A lender letter is an essential part of the package that your Realtor will submit to the other agent and the seller. By showing a great loan pre-qual (based on a good credit score), you look like a much stronger candidate to them and far less likely to fall out of escrow because you couldn’t get the loan approved. Many Realtors even ask you to submit a copy of your credit report showing your high scores (with all of the sensitive information blacked out) because that makes you look even more favorable to the seller. Credit score really matters here!
Look for part two of this blog where we cover the 5 remaining ways a great credit score will help you buy a house!Share