Buying a home is a huge investment, especially for first time homebuyers. It’s not something that can be accomplished without preparation. Unfortunately for many buying a home has become a difficult prospect because of one major drawback- a poor credit history which almost always creates complications. Before you can dream about the road to homeownership, make sure you are ready.
Conventional mortgage lenders will typically want a FICO score of at least 720, in some cases 740 for average interest rates. However, in some cases a score of 660 may still qualify you for an FHA loan at high interests and a larger down payment. Do not underestimate the significance of a high interest rate, it can cost you thousands of dollars over the life of the mortgage. It is essential that your credit be in top shape before considering applying for a mortgage, your creditworthiness determines if you will qualify the mortgage at the best rate.
With that in mind, here’s a checklist you should follow to prepare your credit before applying for a mortgage.

❏ 1. REVIEW YOUR CREDIT REPORT

Many banks provide a free monthly credit score. To request a full report you can visit “AnnualCreditReport.com”, you can receive a copy of your report from the 3 major reporting bureaus once a year at no cost. The site “CreditKarma.com” also provides free access to your score, with monthly updates. When looking over your credit report, you want to verify all details such as: name, address, accounts and balance. Make sure you are not being penalized for old, paid or settled debts. You will most likely discover errors on your credit report, sometimes even minor ones, can take months to repair. It is important to dispute these mistakes.

❏ 2. DISPUTE ANY INACCURACIES

If your credit report contains any errors- you’ll want to ​file a dispute​ with the credit reporting agency. In most cases the agency will require disputes to be sent by mail. Make sure to verify the information they will need. If the credit reporting agency cannot verify the information that you are disputing, they must remove it. Once the dispute is sent to the bureaus, they are required to respond in 30 days. It is important you keep a record of your dispute, including copies of any documents you file for your own reference.

❏ 3. PAY OFF ALL REMAINING DEBT

After eliminating any inaccuracies on your reports you must be paying off whatever outstanding debts you have, it is vital you make all of the monthly payments on time. It is essential to ​keep your overall utilization below 30 percent​ to see rapid changes on your report. A year's worth of on-time payments will raise your score and show a mortgage lender that you are responsible. Another quick way to raise your score is to make more than the minimum payments on your revolving credits, each month- even if it’s just a little bit. Its crucial you stop applying for new credit a year before you apply for a mortgage, also refrain from using credit overall, the lender needs to see you have readily available funds and minimal inquiries on your report.

❏ 4. BUILD A SAVINGS ACCOUNT

After establishing a healthy debt amount, it is essential you start a savings account. As mentioned before the lender wants to see you have readily available funds, and are at low risk of default on payments. Having 3-5 months’ worth of mortgage payments set aside allows lenders to view you as a serious loan candidate. Remember that owning a house is expensive, contact a mortgage lender to figure out exactly how much you can afford. Your savings should include housing expenses, not just a downpayment. Keep in mind property taxes, insurance, utilities and closing costs.
Finally, be patient. Building your credit to buy a house takes time, strategy and patience. Even without any negative information on your report, you’ll want to make sure that all your credit cards are completely paid off prior to applying for a loan. We guarantee if you follow the outlined steps you will be approved for a mortgage at the best possible rates. Happy house shopping!