As many first-time Atlanta homebuyers can attest, getting one’s finances in order before your first-ever home purchase can be nerve-racking. When deciding whether to approve you for a mortgage, lenders look at the following information:
- Your current employment status and income
- Your current assets
- Your credit history and credit score
While you probably can’t (and shouldn’t) change much about your job or current assets right before buying a house, your credit score is something that you should definitely check on and work on in order to put yourself in the best possible light with mortgage lenders.
Why Should I Repair My Credit Before Buying a Home?
While it’s possible to qualify for FHA loans and other mortgage assistance programs with a credit score below 600, the trade-off is a higher mortgage rate that can result in significantly higher monthly payments. If you’re not in a huge rush to lock down a home, then taking the time to rehab your credit can pay off in the long run. The process of repairing credit can take years for some people, while other people may only need a few months to do some basic tidying. It really depends on the score that you’re starting from.
Regardless of what your score is now, here are a few steps to take to boost your credit score before buying your first home in Atlanta:
1. Start monitoring your credit early and often.
The earlier, the better! You are entitled to request a free copy of your credit report every 12 months — one from each of the three credit reporting bureaus (Experian, TransUnion and Equifax). Visit annualcreditreport.com to claim your free credit report. This website is the only website authorized by the U.S. government to provide free credit reports.
Once you have your credit report, you can now begin taking steps to improve your score.
2. Identify and fix any errors on your credit report.
One of the first steps you’ll want to take is to review the report and identify any errors that may be tanking your score. When you spot these, it is your responsibility to file a claim to get them fixed. These claims can take a couple of months to resolve, which underscores the importance of getting a hold of your credit report long before you have plans to hunt for a house to buy.
3. Reduce your debt-to-credit ratio.
The most pressing action to take after addressing any obvious errors in your credit report is to begin reducing the amount of debt you owe in relation to the amount of credit you have. Generally, lenders like to see that your credit utilization is less than 30 percent. For example, if you have a $10,000 credit limit and you have a $3,000 balance, your credit utilization would be right at 30 percent.
4. Cultivate a stellar payment history.
Your payment history illustrates how responsible you are as a person with credit. Understandably, mortgage lenders are less inclined to lend money to people who aren’t great at paying it back. Building a stellar payment history not only keeps you in the good graces of a mortgage lender, it also helps you build healthy financial habits. Talk about a win/win!
5. Don’t fret about getting an 800+ credit score.
Sure, everyone would love a credit score in the 800s, and it’s a goal that we think everyone should aim to achieve. However, for the purposes of buying a house, you don’t need to hold yourself back from buying a house if your median credit score is at least 760. Why? Because for the vast majority of situations and lenders, a 760-credit score is the cutoff for receiving the lowest mortgage rate possible from a lender. That means that a person with a 770 score will typically receive the same interest rate as someone with an 825 score.
Have questions about buying a home?
The expert agents at Atlanta Fine Homes Sotheby’s International Realty are here to help you on your first-time homebuyer journey. Call us today at 404.237.5000.