Buying a home in America is a dream for many people, but it isn't always an easy dream to realize, especially if you live in an expensive neighborhood like Arlington, Virginia. Part of the difficulty lies in how credit is calculated, and more importantly, how a lender looks at the overall credit score and creditworthiness of the person they are considering financing.
Because so much of the credit scoring process is a mystery, many people unknowingly take steps they think will help them, only to later find out that they've actually done more harm than good to their chances. This article asks four simple questions anyone can and should answer before applying for a home loan. If the answers are all good, then chances are you could save as much as $50,000 over the lifetime of a traditional mortgage if you also have decent credit.
How long have you lived at your current address? Ideally it should be at least two years. Lenders are picky about how long a person lives in a particular location, because stability is the bread and butter of home lenders. This doesn't mean you won’t be approved if you have moved around a lot, but it can hurt your chances of getting a loan, or increase your interest rate. Therefore, if you plan to buy a home, don’t plan to move anywhere other than your new home in the next two years.
Have you been working for the same employer for at least two consecutive years? This shows lenders that you are stable, and have an established work history. To lenders, it means that if there are layoffs or downsizing, you’ll be less likely to be cut loose. Likewise, it lets them see a consistent and stable record of income. So, if you are planning a career change, unless it is the dream job you've always wanted, you’re best bet is to stay where you are until after you have your mortgage.
Do you know what your credit score is? This might seem obvious, but a lot of people don’t consider it until actually applying for their mortgage loan. While it is just a number, it is also much more than just a number. It can make or break you, literally resulting in hundreds and even thousands of dollars more per month, depending on the size of your mortgage.
Are you ready to make sure your credit score is in shape? The best way to quickly build up a credit score is by making large purchases every month on credit, and paying them off completely before they are due. This reflects positively on your credit score, in that you will appear to have significant financial liquidity. Lenders love to see financial liquidity – but don’t overdo it, or you can appear reckless.
Remember, no one can guarantee you'll receive a mortgage loan, but there are steps you can take to make sure you keep as much of your money in the bank as possible while securing the best available rate. Pay attention to these steps, and you’ll be able to afford more home for less.
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