Summer is the time of year when most people move into a new home. If you’re thinking of buying a house or refinancing a home loan, how do you get the best deal?
Your first move, long before you start home shopping or refinancing, is to find out where you stand with mortgage lenders and how to improve your position.
Check your credit reports for problems or errors. This won’t give you your credit score, which is golden rule number three, but the information in your credit reports is the basis for your score. It takes time to fix any errors, so start before applying for a mortgage.
You are entitled to a free annual credit report from each of the major credit reporting agencies. Go to their website for details. A cleaned-up credit report can raise your FICO score, which ranges from 300 to 850. With a score of at least 760, you’ll enjoy the best mortgage offers and interest rates. The lower your interest rate, the cheaper your mortgage payments will be.
Now you’re ready to meet with a mortgage lender. These early visits also prepare you for mortgage shopping, letting you see and compare lenders’ styles. Pay close attention to their level of knowledge and how helpful they appear to be. Ask them what documents you’ll need to submit when you apply for a mortgage
Now let’s talk about your credit score rather than your credit reports. Even if you’re not ready to make a purchase, watch your score and monitor your progress in improving it. Although many alternative scores exist, FICO scores, designed by the Fair Isaac Corp., or FICO, are most widely used.
Many avenues now exist to access your credit scores without paying a dime. A high credit score is your ticket to discounts in borrowing. Credit scores are meant to help predict the risk of lending to you.
Some financial institutions offer their credit-card holders a look at their FICO scores for free. Discover Bank offers a free FICO score to anyone by way of its Credit Scorecard program, which you can sign up for online
Getting pre-qualified for a loan usually involves a lender taking a cursory look at your assets and income. Pre-qualification merely indicates the amount for which you are likely to be approved after verification of your financials. By contrast, a pre-approval requires a thorough investigation by the lender. By pre-approving your loan, the bank provides a conditional commitment to lend you up to a specified amount. That can impress sellers and help you when competing with other buyers for a home.