Whether on the hunt for a budget-friendly starter home or combing auction houses for luxury vacation properties, there’s one thing all home buyers have in common: they want to save money and get a lower mortgage rate.
Sure, buying a lower-priced house would do the trick, but that’s not always an option – at least not in today’s competitive marketplace.
So what’s a deal-seeker to do? Wait it out and hope for the steal of a century? Pay more than they can afford and take out credit cards to cover the rest?
Fortunately, there’s a better way to save that cash: Boost your credit score instead.
It’s a simple premise. The better your credit score is, the better mortgage rate you’ll qualify for. And a better mortgage rate means a lower monthly payment and less paid in interest over the life of the loan. Depending on how much your house costs, it could save you thousands – maybe even tens of thousands – by the time you’ve left the property.
So how do you boost your score and snag a lower mortgage rate? Here’s where to start:
1. Pay off some debt.
Focus on paying down your biggest debts first – particularly ones in collections or those with high interest rates. Try to get all your cards down to at least 30 percent of your total credit limit, and if you can clean an entire balance off your plate, do so – even if it’s a small one. Just be sure not to close out your account after you’ve paid it off. Leaving your credit line open can actually give your score a boost and prove you’ve got healthy credit history.
2. Stop the late payments.
Late payments are the kiss of death to a credit score, so do whatever you can to make sure you’re on time, every time. Your safest bet is to set up automatic payments straight from your bank account, but if those have you on edge, consider just setting yourself a recurring alarm or calendar event that will alert you when your bill is due.
3. Steer clear of new credit cards and loans.
Opening a new line of credit is going to hurt your score two-fold: first, by adding a credit inquiry to your name, and second, by giving you a chance to rack up additional, unpaid debts. If buying a home is anywhere on the radar, you’ll want to avoid applying for any new credit cards, getting a new car loan or anything in that vein. Use the cards you currently have or stick to good old hard cash or debit cards.
4. Make sure your report is accurate.
Errors on credit reports are more common than you might think – and they can have a massive impact on your score, as well as your ability to get a mortgage. Run your annual credit report through Experian, TransUnion or Equifax, and make sure the details are all correct. If something looks fishy, file a report with the agency immediately. You’ll want to get any errors remedied before you apply for your loan.
It Takes Time
Start working on your credit score at least a few months before you apply for a mortgage loan. You can’t change your credit score in an instant, but by paying down your debts and making timely payments, you can start increasing that score gradually over time. And a better score means a better rate.
Want to learn more about what factors into your mortgage rate? Want to see what rate you’d qualify for today? Contact an Ethos Lending loan officer today.