Improve
Your Credit Before You Get a New Mortgage
By Jeanette Fisher
You may think you have great credit, and with your large down payment from
the sale of your home, your credit score may not need a boost. However, a
strong credit report can save you money on loan costs and interest rates.
Plus, you may decide to buy two houses (or even more!) with your profits. In
this case, putting less down on your new home makes sense. Ensure your
financial future by getting your credit in shape.
Forget what you've heard about credit.
You may be shocked at some of these tips because this information runs
contrary to what other credit experts say. Qualifying for a real estate
purchase requires different credit than consumer credit, like automobile
financing or department store credit cards.
Common Credit Myths
1. You need to pay off your credit cards.
2. You need to close credit accounts.
3. You need perfect or good credit to buy a house.
Credit Facts
1. Paying off your credit cards lowers your credit score.
2. Closing credit accounts lowers your credit score.
3. You don't need perfect credit to buy real estate.
Why not pay off credit cards? Because paid off credit cards do not compute
in your credit score. Real estate lenders like to see open, active accounts
with low balances.
Why not close accounts? Closing accounts before the payoff often costs you
more money because credit card companies raise interest on closed accounts.
You can buy real estate with poor credit, but you will save thousands in
loan costs if you maintain good credit. A bad credit report leaves home
buyers with non-prime loans. These loans have higher point charges,
prepayment penalties, and higher interest charges, which therefore cost more
money. For instance, a mortgage loan of $150,000, 30-year, fixed-rate
mortgage, interest rate of about 5.72 percent costs around $870 a month;
poor credit scores raise the interest rate over 9 percent and the payments
over $1,200.
As you see from these payment differences, strong credit means that you can
finance a more expensive house with the same payment amount, or save $330
each month in interest charges.
Credit Requirements for Mortgages
Credit needed to buy real estate is not the same as good credit. Besides
your credit score, mortgage lenders consider your debt-to-income ratio and
other credit matters, unlike other credit grantors. Your debt-to-income
ratio is the comparison of mortgage payment, including taxes, interest, and
insurance to your total gross monthly income. Real estate lenders also
consider your employment qualifications, education, and your overall
debt-ratios.
Understanding the difference between strong credit and the credit needed to
obtain mortgage financing will help you save thousands on your new home
purchase. Plus, with the difference in payments, you can buy an investment
house, second home, or your dream home!
Copyright 2005 Jeanette J. Fisher. All rights reserved.
Visit the new Real Estate Credit Help
Center
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Read Jeanette's book, Credit Help! Get the Credit You Need to Buy Real
Estate to learn more about improving your credit.
Link to Real
Estate Credit Help! Center
Order
Credit Help! Get the Credit You Need to Buy Real Estate
"Credit Help! is informative and easily understood. I've discovered quite a
few ways to improve my credit score that I didn't know were possible! And
yes, I agree with my lender, everyone should read this book--even if they
have great credit--so they can keep it that way! Thank you for your
research!"
-Shannon Knapp
Real Estate Investor,
Marina del Rey, California
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Jeanette Fisher's
