There’s no question that buying a home is a big investment with many moving parts to consider.
Before you begin your home search, you’ll want to take a careful look at your finances to make sure you’re ready for this new commitment. Taking steps now to spruce up your credit profile can increase your chances of qualifying for a mortgage and reduce the amount of interest you’ll be charged on the loan.
Although there are some ways to potentially improve credit scores quickly, most credit improvement strategies require time and patience. For that reason, it’s important to start working on your credit as soon as possible before you apply for a new mortgage.
On-time payments are an important key to both earning and keeping good credit scores. In fact, over one-third of your FICO scores are calculated based on the payment history of the accounts on your credit reports. With the busy lives that we all lead, it is a great option to consider automatic bill payment or at least establish a reminder to ensure your payments are made on time. A high credit utilization, which comes from large balances in relation to your credit card limits, can also damage your scores. The good news is that by paying down your credit card balances, you can reduce your credit utilization ratio. Consumers need to check their credit reports at least annually to ensure accuracy and quickly dispute inaccurate information. Many creditors provide this as an account benefit to help consumers stay informed.
A good credit score may allow you to receive a lower interest rate or reduce your insurance premium. Most lenders will require a minimum FICO score of 620 or greater for a conventional mortgage loan. Many loan programs offer 45, 60 and 90 day rate locks. We are in a rising interest environment and buyers should get credit “pre-approved” and lock in their interest once a home is identified and under contract. The turn times to process loans is longer than normal because of the volume. Appraisers are charging more and taking longer. The average turn time can take over 45 days depending on the location of the home.
Arizona is currently in a seller’s market which means competition is tough and homes are being purchased before they even hit the market. Cross collateral loans allow buyers to list their current home while shopping for a new home. During this loan option, the exit home is listed for sale with an existing mortgage, the new home search starts and down payment and closing costs can come from equity in the departing home. This product is in high demand right now, as many people are choosing to build a custom home, while being able to stay in their current home. The cross-collateral loan and all in one custom construction loan are utilized together.
If you’re buying a home for the first time, it’s easy to get swept up in the excitement and be tempted to move quickly. Take your time and prepare your credit to the best of your ability before you apply. Your hard work could pay off and save you a lot of money in the long run.
Written by: Lisa K. Davey, WaFd Bank Vie President, Northeast Arizona Retail Division Manager