The number one rule: pay your bills on time. There is no single element that can do so dramatic impact on the success of an application as your credit history. Another thing, of course, is savings. You should establish a good disciplined savings habit. Although there are a lot of programs right now that do not require downpayment anymore, you are still required to have some money for closing cost and reserves.
Everybody comes into the real estate market with a different perspective and level of experience. But some general rules apply to pretty much anybody when it comes to getting the money to buy a home. So here are some of the dos that borrowers will want to consider.
1. Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60-, or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine how good a loan you get.
2. If something has to be missed, miss the credit card payment first followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. Thats because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign. It will give the most weight to the performance of another mortgage, for example, then the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Lastly, it would evaluate the payment performance of so-called “revolving” loans, like credit cards, which feature variable payments that fluctuate with the outstanding balance. It you had to prioritizeand we would hope you wouldnt be in that situationpay your mortgage loans, pay your installment loans, pay your revolving loans.
3. Consider paying off more debts and putting down a smaller amount at closing. The move leaves borrowers with larger mortgages, but it will allow them to replace non tax-deductible, high interest rate debt with lower-rate mortgage debt that features tax-deductible interest.
4. Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as a new application for credit cards, can hurt a borrowers credit score, especially if theyre filed in the months prior to the home loan review process.
5. Increase the size of the down payment youre able to make by saving as much as possible, as often as possible. Dont put the savings into something volatile, such as an individual stock. But evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save. It depends on how much you have saved already, but I think its important to take a portion of each months income and set it aside for the down payment.
Ken Go is a southern California mortgage broker who's California home loans company, 1st Innovative Finance Group, specializes in finding the right loan for your situation. Ken works with his clients closely to improve their credit, to educate them about the home loans process and products, and to make sure they get the precise loan for their situation. Ken also writes a California Home Loans Blog, where you can find articles like these to help you learn about and choose the correct home mortgage for your needs.