MASTERING YOUR CREDIT SCORE: A KEY TO HOMEOWNERSHIP
Buying a home is an exciting milestone but comes with its fair share of preparations. One crucial aspect that often takes center stage is your credit score.
A credit score of around 620 in home buying is the magic number. In this blog post, we'll guide you through understanding credit scores, credit reporting agencies, and how to improve your credit and safeguard your personal information.
The Three Credit Reporting Agencies
Before delving into credit scores, knowing who's behind them is essential. Credit scores are graded by three major credit reporting agencies: Experian, Equifax, and TransUnion. These agencies assign scores ranging from 300 to 850, with 850 being the pinnacle of credit perfection. Your credit score is a vital factor affecting your home-buying ability.
The Two Key Factors
DEBT TO INCOME RATIO (DTI)
Your DTI compares your fixed monthly debt payments to your total income, including your prospective mortgage payment.
For example, if you have $38 in fixed monthly debt and a monthly income of $100 (please note these numbers are for illustration purposes only), your DTI would be 38%. Most lenders aim for a DTI below a certain threshold.
As mentioned earlier, a credit score of around 620 or higher is typically what lenders look for when considering your mortgage application.
These two factors, your DTI and credit score, are crucial because they directly impact your ability to afford a home.
Shopping for Lenders
You have the flexibility to explore various lenders to find the best mortgage deal for your situation. Moreover, this shopping around for mortgage rates within 45 days will be counted as a single credit inquiry. This means it will have minimal impact on your credit score, usually just a few points.
However, it's essential to exercise caution during this period. While shopping for a mortgage, avoid making other significant credit-related decisions, such as applying for a new car loan, financing furniture, or opening a new credit card account. These actions can affect your credit score and, in turn, your mortgage approval.
In conclusion, understanding your credit score, the role of credit reporting agencies, and how lenders assess your financial readiness are all crucial aspects of buying a home.
You'll secure the home of your dreams without unnecessary financial hurdles by maintaining a healthy credit score, managing your DTI, and shopping wisely for lenders. Remember, preparation is the key to success in the world of homeownership.