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Building and Maintaining Credit: A Guide to Home Buying

Building and Maintaining Credit: A Guide to Home Buying

Being a homebuyer in 2024, you need a great credit strategy. Are you dreaming of buying your first or next home? Navigating the world of credit can be tricky, but it’s essential for achieving your home-ownership goals. Let’s break down the essentials of building and maintaining good credit.

Start Early and Check Your Credit

First things first, start monitoring your credit score early in 2024. This homebuying strategy is crucial before you get serious about house hunting. It gives you time to improve your score if needed. Checking your credit score and understanding your credit report can be done easily through various free online services. Be mindful of where you get your credit scores though. You can obtain a free credit report once per year from each credit bureau

Smart Credit Habits

Building good credit doesn’t happen overnight. Always pay your bills on time and keep your credit card balances low. Some would say keeping the credit card balance <10% of the limit will maximize your credit score. Remember, your credit utilization ratio (how much credit you use compared to how much you have) has a 30% impact on your credit score.

Understand the Impact on Mortgage Rates

Your credit score directly affects the mortgage rates you qualify for. A higher score can mean lower interest rates, saving you money over the life of your loan. It’s vital to maintain good credit, not just for approval but for favorable terms. A recent example we experienced was where a 680 FICO client, would have paid over $325/month more per month than someone with a 760 FICO score. Taking that monthly savings, and reapplying it would have resulted in the home paid off in 23 years and saving $158K in interest.

Addressing Credit Challenges

If your credit score isn’t where you want it, don’t lose hope. Consider financial products designed for those with lower credit scores. FHA loans, for example, can be more lenient while still offering a competitive interest rate. Be mindful of disputing your credit, and consult with a lender before taking action.

Credit Monitoring and Protection

Regularly monitor your credit to guard against identity theft and fraud. Staying on top of your credit report can also help you catch and correct any errors quickly. You may even want to freeze your credit until you are ready for a lender to pre-approve you. This can be done easily through the credit bureaus. Check out a recent video we put out about protecting your credit when buying a home.

The Power of Refinancing

As you improve your credit, refinancing your mortgage could be a beneficial option. It might lead to better mortgage terms or lower interest rates. FHA even has a streamline refinance option that doesn’t require an appraisal or income documents to qualify.

Long-Term Financial Health

Good credit is a cornerstone of your financial health and real estate investment strategy. It requires ongoing attention and education.

Ready to take the first step towards your dream home? Schedule a free consultation with our experts. Or, start by getting pre-approved today. Your dream home is closer than you think!

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