Welcome to my blog for the First Time Home Buyer. I will cover many topics to help you purchase your first home.
Getting Started….. Let’s start with the basics in financing your new home….
THE CREDIT SCORE. What is a credit score? A credit score is a number based on a borrower’s bill-paying history and debt profile that lenders use to determine the likelihood of certain credit behaviors, including whether you will pay on time. The lower the score, the higher the risk, and the higher the rate you will receive from the lender.
Whether you are buying your first home or are planning to take advantage of the current buyers’ market, in order to receive financing in today’s tight money market and receive the best rates, you must have as good of a credit score as possible.
Marilyn Cain, mortgage banker with BRAND Mortgage, mmcain@brandmortgage.com, explains the importance of a healthy credit score: “Understand your credit scores and how to maintain or improve your score is valuable information, and especially important when you want to apply for a mortgage.
Paying bills on time is by far the most important action you can take to ensure a healthy credit score. If you are a little late, make sure you pay before 30 days. At that point it will affect your credit score. And never let any account go to collections. I have seen a $58 book club account badly hurt someone’s credit because it was sent to collections! I’m not sure the person even knew they had not paid the bill.
The next most important issue affecting your score is the balance on your credit cards. Do not let the balance get above 30% of your credit limit, if at all possible. It is better for you to have 2 cards with 30% of the total credit limit than to have one card with 60%.
The third area that affects your credit is your credit history, or how long you have had your accounts open. Scores can go down when you open a new account because it will lower the average age of your existing accounts. Do not close a credit card just because you don’t use it. Also know that closing an account will not remove its history from your report. Keeping a credit card open with a low balance and periodic activity will help to keep scores high.
The type of credit you use will affect your score. A mortgage, auto loan and credit card are typical. Finance companies are the most negatively weighted type of credit .
The last category affecting your credit score is the number of inquiries that have been made to the credit agencies. Seven to 10 inquiries in 12 months can lower your score slightly.
After explaining all of the components, the most important points for you to remember are:
- Pay your bills on time
- Pay off debt (no more than 30% outstanding against your credit line)
- Develop a credit history with credit cards, a car loan, student loans, or a small loan from the bank.
Check your credit score once a year. There are three agencies that report your scores. A mortgage banker will use your middle score for qualifying for a loan. If you find an error in the report you have to write to the credit bureau with documentation.
For more information, go to: www.equifax.com, www.experian.com, and www.transunion.com
Next blog posting…. “ What Can I afford?”. Stay tuned. I look forward to helping you with your next transaction.
Special Thanks to Marilyn for her expertise in this area. Marilyn Cain, Mortgage Banker, 3475 Piedmont Road, Suite 900, Atlanta, GA 30305 770-822-2359 (direct), 404-295-1999 (cell).
I love the info here. Since you’re trying to attract First Time buyers I wondered if the info at a new site might help. Could you take a minute to check out http://www.firsthomeexperience.com/main/ and let me know what you think?
Thanks!
Borrower/buyer education is becoming more and more important in our profession. I spend a lot of time on the education piece very early on. Especially with first time borrowers flooding the markets. Thanks for your post. Jim