About to buy a house? Put your credit on lockdown.
Purchasing a home can be both an exciting and stressful experience. One reason the home buying process tends to be so stressful for many consumers, is the rigorous qualification process involved in getting approved for a mortgage.
If you’re preparing for a mortgage application, it is important to understand that qualifying for a home loan is a very different process than when you apply for most other types of credit accounts.
DIFFERENCE #1: Lenders look at all 3 credit reports and multiple credit scores. the biggest difference between applying for a mortgage and applying for just about any other type of financing is that, wit a mortgage application, all 3 of your credit reports and 3 of your credit scores will be under the microscope. When you apply for other types of financing (ex-credit card, auto loans, personal loans), the lender will typically only review one of your credit reports and one of your scores.
DIFFERENCE #2: When you initially apply for your home loan, you may receive a “preapproval” letter from your lender if your credit and finances are up to par. Yet, contrary to popular opinion, a preapproval letter is not actually a guarantee of a loan. Of course, it is still wise to seek preapproval from a lender, because doing so will make realtors more willing to work with you and could make sellers more inclined to take your offer seriously.
Your lender will have checked your credit reports and scores prior to issuing your initial preapproval letter. However, even though your credit was checked at the beginning of the loan application process, that doesn’t mean your credit won’t be checked again later.
In fact, since the home loan closing process commonly takes 30, 60 , or even 90 days, many lenders require a final credit check prior to closing to make sure your credit hasn’t undergone any changes in that time that would increase your level of risk.
Because your mortgage lender is likely to check your credit again prior to closing, it’s important to avoid making any “mistakes” that could impact your credit scores or increase your debt-to-income ratio (DTI). This means that applying for new credit, opening new accounts, or running up a higher balance on any of your credit card accounts needs to be completely off limits until after closing.
The bottom line… Once your make your initial application for a mortgage, don’t do anything to your credit until you have the keys to your new home in your hands.
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