If your dream is to own a home of your own, you already know that your credit score is critical, and that you should maintain as high a credit rating as possible. However, you might not know precisely how to obtain and maintain good credit. While some factors that can sink your credit score are obvious, others may surprise you.
Obtaining mortgage pre-approval can give you a boost in obtaining the home you want. Prequalification can also be helpful, but pre-approval is preferable. The pre-approval process is more rigorous than the process for prequalification, and produces an actual commitment from a lender, under certain conditions. Prequalification does not.
Along with prequalification and pre-approval, it is important to avoid the following basic mistakes in seeking a mortgage. While you may be able to obtain a mortgage if you have one or two of these strikes against you, the interest rate for your mortgage will be significantly higher than the mortgage rate you could possibly obtain with an absolutely clean record. If you carry too many strikes against you, or even one or two of the wrong strikes, you could be out of the running for any mortgage for years to come.
- It should go without saying that bankruptcy and foreclosure are absolute mortgage approval killers. Avoid both if at all possible. If you have either a bankruptcy or foreclosure on your credit report, you may have to wait years before you are able to obtain approval for a mortgage.
- Avoid late mortgage payments, which can also kill your application even if your credit is otherwise up to par. If you have a legitimate reason for missing mortgage payments, and can document that the problem is in the past, you may be able to overcome this hurdle.
- If you list a property for sale, don’t attempt to refinance it. Lenders will take a dim view of this action, and will probably disqualify you for a mortgage.
- Get rid of erroneous charge-offs and collections, and resolve legitimate adverse items. Both items will sink your credit score like a rock.
- Avoid credit counseling, at least immediately before you go mortgage shopping. Lenders are skittish about lending large sums to potential borrowers who have trouble paying their bills.
- Don’t rack up a slew of new credit cards or max out the cards you already have. Put off buying big-ticket items unless you can afford to pay cash. Too much debt can kill your mortgage application.
- Unless you’re a new grad with a great job offer in hand, don’t try to get a mortgage until you can establish no less than two years of steady employment with consistent income.
- Don’t try to get a mortgage unless you can show a good housing history for at least the past twelve months.
- Avoid attempting to apply for a mortgage unless you can document sufficient liquid assets to cover the entire mortgage note, including taxes and insurance.
- Don’t attempt to obtain a mortgage without at least three favorable credit trade lines, with at least a two-year history for each trade line.