Buying a property is one of the biggest investments any of us will ever make. Hence, it is understandable that buying a home can significantly impact your creditworthiness, especially if you don’t get it right. It is important to note that it is normal to see changes in your credit score based on inquiries, your payment history, and more during the home buying process.
Before The Home Purchase
Your creditworthiness is one of the most important factors home loan lenders consider. Even if your credit is not optimal, you still have options when buying a home. However, if your goal is to improve your financial condition before you buy a home, you may need to change your credit score. The most effective way to improve your credit score is to pay off your current debts. In addition, paying off the credit card and loan balances and avoiding difficult inquiries will help keep your score as high as possible once you decide to begin the loan process.
During the Home-Buying Process
Home-loan lenders look at different aspects of your financial condition, from your debt-to-income ratio to your professional history and creditworthiness. To obtain pre-approval for your loan, lenders need to thoroughly review your credit report, which usually requires them to hard-pull the report. In certain situations, lenders will probably only perform this once. However, if they need to confirm information or your loan takes longer to process, another hard inquiry may be required. While hard inquiries have a light impact on your credit score, there’s still an impact nonetheless, so the key here is to move fast the moment you get pre-approved for your home loan to protect your credit score from the impact of possible multiple inquiries.
The closing day represents two things: first, you’re now officially a homeowner! Second, this is the first time buying a home will impact or change your credit. Here, you can expect your new account to have an increase in the total number of accounts and an increase in account variety. This can have a positive effect on your credit score. However, there’s also a downside. Since you’re adding a “debt” in the form of the loan, this may affect your debt-to-income ratio, and in turn, negatively affect your credit score until you establish a consistent payment history. Thus, if you are behind with your payments, owning a home can negatively affect your credit score. You can even expect the worst if you end up in foreclosure.
The surest way to keep homeownership from affecting your creditworthiness, in the long run, is to make sure you are consistently making your payments on time. This can be achieved by pre-qualifying and making sure you are only buying a home within your budget.
Owning a home can have a huge impact on your credit score. This is a great way to give it a financial boost from an asset that adds to your total wealth to payments that improve your credit score. The key to successful ownership is proper preparation so that you can be comfortable throughout the process. So, are you ready to take the plunge today? Contact Total Lending Concepts and let us help you make your home buying dream a reality.