Buying a home is a lengthy process that requires a wealth of effort on your part, even before you begin the buying process. Not only must you maintain a certain level of income in the months leading to your purchase, but you must also improve your credit score far ahead of time. Credit scores will influence whether you can secure a loan to purchase your dream home. The real estate agents at Rex Homes have compiled an important list of common mistakes to avoid as you prepare for that life-changing moment.
1. Accumulating Too Many Inquiries
This can be a bit tricky to ensure when you’re shopping for any kind of loan, but don’t worry – it is still very much in your control. When you get your credit checked, an agency can perform either a “hard” or “soft” inquiry. Hard inquiries are typical of banks or credit card companies checking to see if you are eligible to open a line of credit. These require authorization from you, so you will always be aware of when there is a hard inquiry performed on your credit.
Soft inquiries occur typically when an individual (such as a private landlord renting a single home) or company checks your credit. These do not leave lasting impacts on your credit and are normally used in prequalification checks.
Hard inquiries, or pulls, as they are also known, can negatively affect your credit score, especially when they are performed in high amounts. This is why you must avoid “shopping around” for loans – whether it be for a new vehicle, home, etc. – without professional guidance.
2. Using Credit to Make Large Purchases
One of the last things you want to do when preparing to purchase a new home is running up any existing accounts you currently have open. Remember the “Golden Rule” of credit utilization: Never use more than 30% of your credit limit at once. It is better to distribute spending between several credit cards, keeping them all under 30%, than it is to max one single card out.
Reaching or exceeding the limit of a card can severely impact your credit score, thereby hurting your chances of qualifying to purchase the home of your choice.
3. Neglecting to Review Your Credit Report
This is perhaps one of the biggest mistakes you can make as a prospective homeowner. Checking your credit score alone, without reviewing the records that determine that score, only gives you part of the picture. This may provide you false information regarding your ability to qualify for a new home.
If you happen to have any errors in your credit report, such as late payments or unauthorized hard inquiries, these may be negatively affecting your credit. Such mistakes can bar you from mortgages that you may well be qualified for, so it is imperative that you have them removed. This must be done at least one month ahead of time, as sometimes these errors can take up to 30 days to show up on your report.
Preparing to purchase a home takes attention to detail and close monitoring of both your finances and your credit. Keep these factors in mind as you begin this process to ensure you get the home of your dreams.