Credit Tips for Buying Your First Home

Thinking about buying your first home?  Before you even consider making an offer, before you get pre-qualified, before you do anything at all, you'll want to take a good, long look at your credit report. Believe it or not, even those of us with the best credit almost always have something that holds up the mortgage loan process, so if you can head off any problems before you start the process, you might make it a little less stressful later on.  

Here are a few tips to help you along:
  • Closing Old Accounts Can Actually Hurt Your Credit
    • One of the main factors that lenders look at when reviewing your clients’ credit history is how long accounts have been open.  They typically average all current and past accounts to get an average length of time. The longer your credit history, the better. By closing an old account, you are effectively reducing the impact that individual account may have on your overall credit history. Instead of closing the account, keep it open.
  • All Debt is Not Equal
    • Lenders look at the specific type of debt to better understand the risk associated with it. Short-term accounts, like credit or charge cards, are considered more risky if the account has a high amount of revolving debt. This is due, in part, to the requirement that credit cards be paid off monthly.  In contrast, a 30-year mortgage is considered to be a long-term debt and is treated as such. Therefore, just because you have a car loan with a high balance remaining, does not mean that it will hurt your credit as much as a credit card that is maxed out.
  • Credit Repair Doesn't Always Improve Your Credit Score
    • The old adage of “if something is too good to be true, it probably is” couldn’t be more accurate in this example. Younger generations have become increasingly interested in getting help establishing or repairing their credit.  Companies such as Credit Karma, Credit Sesame, and even the major three credit reporting companies such as Equifax, Experian and TransUnion offer ways to improve or “boost” credit. However, buyer beware.  These companies can only assist you with creating a plan to pay down or consolidate debt. They cannot magically make or reduce the amount of debt a person has — this can only be done by paying off an account.
  • A Paid Off Bill is Not Immediately Removed From Your Credit Report  
    • Unfortunately, a derogatory mark like a collection or missed payment can stay on your credit report for up to seven years. While paying this off will stop future attempts by the collection agency or banking institution to collect on the debt, there is no way to remove a derogatory mark from your credit report unless it was reported incorrectly due to fraud or identity theft.
  • Marital Status Changes Can Affect Your Credit Score
    • Information like income, employment and relationship status are not reported to credit bureaus. Questions regarding this information will likely be asked during the credit application process in conjunction with your credit score.  However, they will not show up on a credit report. This is important for those going through a separation. If one partner does not pay a debt and the other partner is on the account, it will negatively impact both parties.

Rising Mortgage Interest Rates May Influence Homebuyers

Interest rates for home mortgage loans have risen since November. Experts have taken notice — and so have homebuyers, since rate increases generally make homes less affordable.

What’s a prospective homebuyer to do? Wait for rates to drop again? Buy now, before they go even higher?

“The most important thing is to keep perspective,” says Greg Jaeger, president of USAA Residential Real Estate Services. He says rates were at 18% when he bought his first house in the 1980s, four times what they are today.

“Over the past eight years, we’ve become so conditioned to extremely low interest rates that some people get concerned about any increase, even when the rates are historically still very low,” Jaeger says.

But interest rate fluctuations represent real money to consumers. For example, as the rate crept up from November’s 3.3% to 4.125% two months later, the monthly payment on a 30-year conventional loan for $250,000 increased by $115.

For Jaeger, even the higher cost has a silver lining. “It may tip the scale for some potential homebuyers, but if it helps them look again at a home’s affordability, it could protect them from financial overreach.”

Interest rates fluctuate daily, and even throughout the day, but the changes typically are small. Even a bigger jump in interest rates could be offset by a decrease in home prices, so Jaeger advises not trying to time the market. “Instead, focus on the big picture,” he says. “Can I afford this? Does my budget allow a mortgage payment, and all the things that come with homeownership, and still allow me an emergency cushion and savings?”

If not, now may be a bad time to buy, no matter what the interest rate is. On the other hand, if your financial and personal situations make homeownership a good deal, buying at the current rates may be one of the best investments you ever make.


‎02-27-2017 07:00 AM

Content provided courtesy of USAA.