Buying a Home? Tips on Managing Your Credit as Part of the Process

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Saturday, 18 September 2010 08:08

Buying a home? Managing your credit is critical... maybe more critical than it has been in recent years. There are a number of new mortgage loan regulations and unless you've been living under a rock lately, it probably comes as no real shock that tight credit is a fact of life these days.

The rules have changed and home buyers now have to manage their credit before, during the home-sales process, and even right up until the day of closing. A far cry from the "old days", but a fact. Most people realize that their credit report will be pulled as part of their mortgage loan application and approval. But, many don't yet know that their lender may be required to pull their credit report again - right before the closing. Any material changes in the report can cause major problem now, even triggering another loan approval process. So, how can you minimize the impact of all the new lending regulations when buying your next home? Here are a few tips you might consider:

Start Managing Your Credit Now: This involves getting a trusted lending professional earlier in the process than you might think and finding out what, if any, challenges you may have to deal with. If you find issues on your credit report, don't make a move without consulting your lender first.

Don't Automatically Dispute Any Inaccurate Information in Your Credit Report: If you do and a note is put into your credit file, the mortgage loan underwriter may not be able to process your loan request unless and until all such notes are removed. If the items are minor enough, it may be better to wait until after closing to officially dispute them.

In General, Don't Do Anything That Would Cause a Red Flag in the Credit Scoring System: This sounds easy enough, but it's not. Many buyers will hear that they are "approved" for their new loan and will go straight to a retailer and sign up for, say, new appliances to be delivered the day after closing. Bad idea. Don't add any new accounts, co-sign for any other loans, or even change your address with the bureaus. If you do, your credit report may be affected and, when the lender checks it again the day before closing, you may get a nasty surprise.

Don't Allow Any of Your Existing Accounts to Become Past-Due: Pay particular attention to the "due date" on all credit accounts and make sure you don't let one slip. A late-pay or past-due on an account could cause you problems with your loan - even if it's the day before closing.

Don't Apply For Any New Credit: Even if you get one of those "Pre-Approved" letters in the mail, just ignore it for now. Every time someone extends you credit, they will likely do what's called a "hard inquiry" on your credit report. This inquiry alone can hurt your credit score and cause you problems with your mortgage loan.

Don't Close Credit Card Accounts: Closing available credit lines can negatively affect your score because it may appear that your debt ratios have changed. It may also negatively affect the length of your credit history. If you plan to close an account, consider waiting until after closing.

Don't Pay Late: If you have a 30-day late (or worse) on your credit report, it could be costing you points on your credit score. And, these penalties are not easily remedied, sometimes taking months to recover from.

Don't Max-Out Your Credit or Go Over Your Credit Limits: This might be one of the fastest ways to derail your credit score. Try to keep some consistency throughout the process and avoid approaching pre-approved credit limits.

These are just some suggestions and every buyer's situation is unique, but it's clear that getting a mortgage loan today is a different, and more-regulated process than it was even a few years ago. The main points to remember are that home buyers need to begin managing this part of the home-buying process with their lender much earlier than before, and that new lender requirements will pose some new challenges. Working with your loan professional, knowing your particular credit situation and managing issues proactively as they relate to financing your new home, will minimize the little "surprises' we all dislike.

Once you're ready to buy a Boulder home, we would welcome the opportunity to help you!

Phil Boren is a 26-year veteran real estate Broker and Realtor with RE/MAX of Boulder, the #1 RE/MAX office in the U.S. Sign up for our free monthly E-Zine to keep up with Boulder real estate. We also offer free resources for your move to Boulder, relocation videos, Boulder school info, Boulder neighborhood profiles, the ability to search the Boulder MLS for active and sold listings, foreclosures, short sales, Boulder open houses and more.

(c) Copyright - Phil Boren. All rights reserved worldwide.

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