Getting Your Credit Ready to Buy a Home

Thinking of buying a home this year?  Fabulous! You can search through homes for sale here and sign up for automatic notifications of listings that fit your search criteria. If you plan to finance your purchase, you may want to take a look at your credit 6-12 months before you are ready to buy.  There may be some unexpected items reported on your credit that could prevent or delay your buying a home.  It is better to sort those out on the front end rather then add to the stress of searching for and buying a home.

1. Look for the big errors or mistakes on your credit report.  There are cheap options to see your credit report at www.annualcreditreport.com.  You should order the report from all 3 reporting bureaus - Experian, TransUnion and Equifax just to make sure they are all reporting the same.  Look for accounts that belong to another person, look for accounts that have been closed over a year, look for late payments that were actually on time, and if you have had a short sale, bankruptcy or foreclosure make sure it is reporting properly on your credit report.  If you come up with any issues, each report will have instructions on how to dispute the errors immediately.  Make sure you get documentation in writing.

It is best to keep your mortgage lender in the loop if there are any disputes. This could help stream line your mortgage application rather then weighing it down.

2.  Do another scan through the 3 reports, this time look for delinquencies in payments that should have been seasoned and off your report, make sure that balances are accurate on credit cards, car loans or student loans, make sure your credit limits are accurate and make sure that if you had a short sale, bankruptcy or foreclosure the dates and details are correct.

Your credit score can drop by paying bills late, missing payments entirely, maxing out credit cards, loan amounts, etc. You can see why having the proper credit limits noted as well as the current balance can affect your credit score.  Make sure that any delinquencies have seasoned off your report after 7 years, bankruptcies after 10.  The date of a short sale or foreclosure adversely affects the ability to obtain a new mortgage so make sure those dates are correct.  

3.  Which accounts to pay off first and which to keep to show you are a responsible credit user is probably the best piece of information I can give.  Make sure to pay off all accounts in collections, state and federal tax liens, past home loans or lines of credit in default (HELOC) that were not excused through your foreclosure or short sale and then lastly defaulted federal student loans.

If you have any of these showing up on your credit, talk to your lender and see if you can negotiate the way they show on your credit report so that they are not negatively reported.

Do not go out and start spending on credit to raise your account balance to a 30% credit usage.  That can also be seen as a warning of financial distress to credit reporters.  

If you don't have much credit history, no worries.  Some lenders are working with cases like this and take into account non-credit reporting payments like insurance policies, child care, rent, etc.  This can help you prove your worthiness and obtain a loan.  Make sure you can document your on-time payments for the last 12 months.

I have partnered with a lender who helps potential home buyers fix their credit.  He can give you sound advice on how to bring your scores up enough to obtain FHA or conventional financing in as little as 6 months but you must be willing to follow his advice to the letter.