If you are considering buying a home, understanding your credit report and score is the first step toward obtaining financing for your purchase. According to a recent TransUnion report, a majority of would-be homebuyers remain misinformed about the mortgage process, including the factors dependent on credit scores and steps to improve credit before buying.
“Leading up to a home purchase is a particularly important time to check and understand your credit score, as it affects lending rates and mortgage terms,” explains Ken Chaplin, SVP at TransUnion. “We recommend prospective home buyers begin regularly checking their score at least three months before securing a mortgage in order to maximize their potential for the best financing options.”
Per the report, half of potential homebuyers correctly identified what factors can be impacted by a credit score, including interest rates, the amount they can borrow and their mortgage lending terms.
Less than half of potential homebuyers, however, understand their credit score measures the amount of debt they hold, the risk of not repaying back a loan, or the financial resources they have to pay back loans. About a third of prospective homebuyers incorrectly believe increasing their income or closing old accounts before applying for a mortgage would help improve their scores.
A nearly equal amount of potential homebuyers believe one month prior to purchasing is a suitable timeframe to check credit scores. One month gives homebuyers little time to take action if they discover fraudulent activity like identity theft or old, unpaid credit card debt that could negatively affect their score.
After reviewing your credit report and score, take time to research loans, rates and brokers before signing a contract. Doing this work ahead of time will pay off later with a better rate and terms. Be realistic with what you can afford. The larger your down payment, the wider your options. Putting more money down, up front, will help ensure you pay less each month.
Published with permission from RISMedia.