Buying a home is not a simple business, especially for first-time home buyers. The good news is that they have experts to guide them through every step of the home purchase and finance process – The Trembley Group Real Estate Sales Executives and their recommended business partners like Tim McCoy, Vice President of Home Mortgage Lending at Anderson Brothers Bank. They routinely walk their clients through every step of the home purchase process. They’re experts. It’s what they do every day, all day.
The Real Estate Professionals at The Trembley Group Real Estate are committed to positively changing the lives of their clients by making the home buying and home selling process as pleasant, profitable, and seamless as possible. The Trembley Group Real Estate has partnered with select companies who share their vision and commitment – attorneys, home warranty companies, pest control operators, home inspectors, contractors, mortgage brokers, and others committed to doing whatever necessary to make their client’s real estate dreams come true. Tim McCoy is one such professional.
Buying a home is not an everyday occurrence for most folks and the process can be pretty intimidating. For first-time buyers it can be overwhelming. First-time buyers have foregone dinners out, the summer vacation and that much-needed new car, accumulating the cash for a down payment. They’ve been willing to make sacrifices because they’re tired of throwing away their cash every month and they understand one of the best ways of accumulating wealth is owning real estate.
Many first-time home buyers have seen the housing market rebound sharply from its lows a few years ago. They’ve seen the job market improve and interest rates stay relatively low by historical standards. Like many Americans they know that there is no better time to buy a home than right now. But the easy-money days of mortgage lending are long gone and many banks are requiring bigger down payments and higher credit scores.
CNBC did an excellent piece this week on the importance of a solid credit score for first-time buyers. “Buying a home requires a lot of financial responsibility, and one’s credit score is a direct indication of how fit an individual is from a money management perspective,” the story says. “If you want to save thousands of dollars in the long-term, work on upping your score now.”
What is a credit score?
A credit score is a three-digit number generated by mathematical formulas using information found in a credit report. It’s designed to predict risk. Specifically, it tries to predict the likelihood a borrower will become delinquent or default on a credit obligation like a mortgage loan.
There are a many credit-scoring models but the one that dominates the market is the FICO credit score. According to myFICO.com, the consumer website for the FICO score developer, “90 percent of all financial institutions in the U.S. use FICO scores in their decision-making process.”
A credit score is one of the most important parts of the mortgage approval process. If a first-time homebuyer wants to improve their score, they can. Making small changes in how debts are handled — some of which won’t even cost a dime — can make a difference in a credit score and help a borrower qualify for a lower interest rate, saving thousands over the life of the mortgage.
This three-digit number is as important to the home buying process as a Trembley Group Real Estate Sales Executive. Here are a few proven suggestions for improving a credit score.
Protecting Your Credit Score
Watch Those Credit Card Balances
One major factor in a credit score is how much revolving credit a consumer has versus how much a consumer is actually using. The smaller the percentage, the better the credit rating. The optimum: 30 percent or lower.
To boost your score, “pay down your balances, and keep those balances low,” says Tim McCoy, Vice-president of Mortgage Lending at Anderson Brothers Bank in Myrtle
Beach. “If you have multiple credit card balances, consolidating them with a personal loan could help your score. What you might not know is even if you pay balances in full every month, you still could have a higher utilization ratio than you’d expect. That’s because some issuers use the balance on your statement as the one reported to the credit bureau. Even if you’re paying balances in full every month, your credit score will still weigh your monthly balances.”
Eliminate Credit Card Balances
“A good way to improve your credit score is to eliminate nuisance balances,” Tim says. “Those are the small balances you have on a number of credit cards. Charging $50 on one card and $30 on another instead of using the same card (preferably one with a good interest rate) can hurt your credit score overall. The solution to improve your credit score is to gather up all those credit cards with small balances and pay them off. Then select one or two go-to cards that you can use for everything. That way, you’re not polluting your credit report with a lot of small balances.”
Leave Old Debt On Your Report
Some folks erroneously believe that old debt on their credit report is bad.
The minute they get the car paid off, they’re on the phone trying to get it removed from their credit report. Negative items are bad for your credit score, and most of them will disappear from your report after seven years. However, “arguing to get old accounts off your credit report just because they’re paid is a bad idea,” Tim says.
“Good debt — debt that you’ve handled well and paid as agreed — is good for your credit. The longer your history of good debt is, the better it is for your score.
One way to improve a credit score? Leave old debt and good accounts on the report as long as possible. This is also a good reason not to close old accounts where there’s a solid repayment record.”
Use Your Calendar
If you’re shopping for a home, it pays to do rate shopping within a short time period.
Every time there’s an application for credit, there’s a small dip in a credit score that lasts a year. That’s because if someone is making multiple applications for credit, it usually means they want to use more credit.
Pay Bills On Time
When planning a major purchase (like a home or a car), most folks are scrambling to assemble a big chunk of cash. While juggling bills and saving the maximum amount, it’s critical to pay bills on time. Even if they’re sitting on a pile of savings, a drop in your score could scuttle that dream deal.
One of the biggest ingredients in a good credit score is simply month after month of plain-vanilla, on-time payments. “Credit scores are determined by what’s in your credit report,” says Tim McCoy of Anderson Brothers Bank. “If you’re bad about paying your bills — or paying them on time — it damages your credit and hurts your credit score,” he says. “Putting cash into a savings account for a major purchase is smart. Just don’t sacrifice the regular bills to do it.”
Maintaining A Credit Score During Closing
Once a credit score is in shape and the homebuyer is approved for a mortgage, it’s important to protect and continue to strengthen the credit score during the loan approval period to assure a smooth closing process. Lenders are now required to check borrowers’ credit twice during the loan application process: the first time during the pre-approval and the second time just prior to closing.
This second credit check has a big impact on the mortgage application because changes to your credit score could mean an application might be denied! Here are seven tips to protect a credit score during this important time.
1) Keep Paying on Time
As always, pay off credit card obligations on time. Never miss a card payments during the loan application period. Even if a mortgage applicant was pre-approved, one missed payment could bring an application process to a sudden halt or abrupt end.
2) Don’t Change Jobs
Do not change or quit a current job (unless it means making more money). Lenders want to see stability, and they want to see a steady or increasing income that will enable regular mortgage payments. Before entering a new position, a mortgage applicant should check with the lender to discuss the possible impact of changing jobs during your application process.
3) Avoid Co-Signing Any Loans
Do not co-sign on other loans when applying for a mortgage. Even if a mortgage applicant is not responsible for making payments on that loan, the bank will still view the loan as the cosigner’s.
4) Do NOT Close Any Current Credit Cards
This one seems backwards. It’s complicated, but when a credit card account is closed, a mortgage applicant is reducing the line of available credit. As a result, a homebuyer will be raising their debt to credit-limit ratio. For example, if a mortgage applicant has overall credit card limits of $10,000 and balances of $2,000, the ratio will be 20%. But, if the applicant closes a line of credit with a limit of $6,000, the ratio is raised up to 50%. The ability to pay back a loan will appear less likely, causing the bank to view the applicant’s loan as a higher risk investment and possibly retract the loan approval.
5) Stick with a Single Bank
Stay with the current bank for day-to-day banking needs. Just like an applicant’s employment history, lenders want to see stability. Plus, moving money around only makes tracking funds and credit histories, extending the loan application period and increasing the chance something could go wrong.
A Small Number With A Big Impact
Individual decisions that borrowers make everyday like what to buy and how to pay for it all add up to create a credit score. Managing this number responsibly gives access to the mortgage needed to buy a home at a great rate. Sitting down with real estate and mortgage professional like a Sales Executive from The Trembley Group and Tim McCoy at Anderson’s Brother’s Bank can assure that the process is as easy and seamless as possible.
Be sure to see our next Blog on How Much Money Will You Need?
At The Trembley Group, we pride ourselves on being the experts at more than just selling real estate. We are local residents, some of us have been here for a lifetime. The rest of us will be here until the end of time. We love living, working, and playing in the diverse backyard of Coastal Carolina, and look forward to helping you live and love your dreams soon too. Please reach out to us by phone or email for personalized service and one-on-one advice.