Many first-time homebuyers will delay getting a mortgage because the process is long and intimidating. However, this is a crucial step in buying your first home. As of 2018, there are new mortgage programs that make it easier for first-time homebuyers to qualify for a loan than ever before. Don’t hesitate to work on getting approved for a loan. It may seem daunting, but you can get approved if you can make extra efforts towards improving your credit score.
The most common type of loan first-time homebuyers use is an FHA loan. These types of loans are popular because of their low down payment and credit requirements. Even borrowers who have bad credit with a credit score of 500 can qualify for a loan with a 10% down payment. But you don’t have to settle for that! A borrower with a FICO score below 580 is highly unlikely to be approved by a lender, and if you can improve your score to 580 you get better deals on an FHA loan. With a credit score of 580, you can get a down payment as little as 3.5% on an FHA-insured mortgage loan.
How Can You Work On Improving Your Score?
First, get a copy of your credit reports. You’ll want a copy of your credit report from all three major credit bureaus. You can get a free copy of your report at annualcreditreport.com, a government-run site that allows consumers to get a free copy of their credit reports once a year. You’ll also want to know your credit score, which you can check with websites such as Credit Karma, Credit Sesame, or Wallet Hub — three websites that give you your reports and credit scores for free.
Make sure your reports are free from errors. Check all three. If you find any errors, you should contact the credit bureau immediately to file a dispute.
Some errors you can look for are:
- Incorrect employers
- Current and previous phone numbers and addresses
- Inaccurate account information
- Accounts that do not belong to you
- Late payments that should not be there
- Credit injuries that you did not authorize
You can dispute inaccurate information on your report by contacting the credit bureau directly by phone, online, or in writing.
Check Your Credit Score
After you’ve addressed any possible mistakes on your report, check your score again. You’ll want to make your score as high as possible before applying for a loan. Check your score at one of the websites mentioned above, and then work on improving it.
A few ways to quickly improve your score include:
Paying down credit card balances. The amount of available credit you’re using is called your credit utilization ratio, and it accounts for 30% of your overall FICO score. Try paying your balances to less than 10-15% of the card’s limit.
Avoid applying for new credit. This means no new lines of credit, no new credit cards, no new loans. When you apply for a credit a hard credit inquiry is reporting to the credit bureau which will lower your score. You are also adding debt to your report, which is always bad for your scores.
Pay all bills on time, every time. When applying for a mortgage it is crucial that you don’t have any new late payments. Set up an auto-pay with all your bills to ensure you don’t miss one.
Follow these steps, and you’ll surely improve your credit score.
Stonebridge Mortgage Group Offers Guidance On All Mortgage Matters
Stonebridge Mortgage Group can help guide you through the home buying process. We help get you pre-approved for a mortgage and help with your real estate loans and other mortgage solutions, both residential and commercial. We serve the greater Portland area and are in Gresham, Oregon.