Many people who are considering buying a house for the first time struggle with the question "Where to start?" So here is the answer. The first place to start is by getting a copy of your credit report. The credit report is an essential part of the preparation process unless you have an abundance of cash lying around. The qualification of a mortgage to purchase a house will rely on large on your credit history of paying back debts. The common reasons that mortgages get denied are because of past due amounts showing on a credit report and or too many inquiries.
Past due accounts shown on a credit report appears to a lender that the borrower cannot manage their bills by budgeting or that the borrower is living beyond the borrower's means. When a borrower makes many inquiries in a short time, it signals the lender that the borrower is about to run the borrower's credit debt up. The credit bureau has a scoring system in place to calculate a credit risk factor. There are several factors that the credit bureau uses to make up its credit risk formula. The two main factors that carry a lot of weight in the bureau's score calculation are credit inquires and max out debts. Lenders rely on the credit score system to help them place you in a loan program. The lenders usually have many loan programs that can accommodate various risks; the higher the risk, the higher the interest rate.
It is always best to pull your credit report to access your creditworthiness before going to any lender. When you pull your credit, it does not work against you as a credit inquiry from a lender. It makes no sense to go to a lender before you know what is outstanding on your credit. In most cases, it may be best to dispute credit accounts for accuracies. There are three credit bureaus in the United States, and their names are Transunion, Equifax, and Experian. The following are links on how to request a credit report and to dispute your credit report from each credit bureau:
- TransUnion – You can dispute your credit report from TransUnion by clicking here
- Equifax – You can dispute your credit report from Equifax by clicking here
- Experian – You can dispute your credit report from Experian by clicking here
When you know where you stand based on your credit report, you can have meaningful dialogue with a loan officer. It is also best to carry your credit report copy to consult with the loan officer. The loan officer can give you advice based on your credit report. When your credit report looks creditworthy the loan officer will have you authorize their brokerage to pull an official credit report on your behalf. After that, you will know the qualified mortgage amount that fits your budget when the lender provides you with their pre-approval letter. You should give your real estate agent a copy of the pre-approval letter that states your qualifying amount. A skilled real estate agent can find you a house that fits within the prescribed budget set by the lender. You should not stray from this prescribe budget set by the lender unless you inherit a large sum of cash to put as a down payment.