Before you head to the bank, learn your credit score. Looking forward to tackling a to-do list filled with do-it-yourself projects once you own a home? You don’t need to wait to move in to get started. The financial DIY projects you need to tackle to prepare for the mortgage process will lay an important foundation for home ownership.
The current credit crunch means credit worthiness is more important than ever in qualifying for a mortgage. Before you head to the bank, learn your credit score. This number, ranging from 350 to 800, tallies your borrowing history and grades your likelihood of paying back money you borrow. Consumers with credit scores at the higher end of that scale will qualify for lower interest rates. Experts say that a credit score of 740 is required to qualify for the most favorable interest rates and smooth the borrowing process. That score has risen by more than 60 points during the last six months due to the current tightening in lending practices.
Credit scores are based on credit reports assembled by three major credit-reporting agencies: Experian, Equifax, and TransUnion. According to the Federal Trade Commission, consumers can obtain a free credit report once each year by contacting the credit report clearinghouse at www.annualcreditreport.com, or at 1-877-322-8228.
Check each entry on your credit report for accuracy, and work directly with creditors to clear up any discrepancies.
Important as your credit report may be, it’s not the only barometer a lender will look at in determining a borrower’s credit worthiness.
“A lot has changed in the amount of documentation required” for buying a home, says Brandon Cornett of www.homebuyinginstitute.com. “Today, home ownership is something you have to work toward.”
Part of that work includes assembling documentation a lender will require, including six months’ worth of bank statements and recent tax returns, and determining your debt-to-income (DTI) ratio. This ratio expresses the amount of money you owe to creditors compared to the amount of money you make.
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DALLASNEWS
June 12, 2009
