Thursday, May 4, 2017

How Student Loans Affect Getting A Mortgage When Buying A Home

One topic that has been highly discussed in the mortgage and real estate industry are student loans.  If you’re trying to buy a home and have student loan debts, you’ve likely experienced a high level of scrutiny from mortgage lenders and have had to answer several questions.
Student loans are similar to other types of debts, such as a car loan or credit card debts, in the sense that they can dramatically impact the amount a lender is willing to allow a borrower to have.  There are many frequently asked questions about mortgages and it’s vital that if you have student loans, you ask a mortgage professional how they can impact your ability to qualify for a mortgage.
If you’re going to be buying a home and have student loans, make sure you read on to find out how student loans affect getting a mortgage.  Below you will find out how student loans impact mortgage lending, how student loans affect specific types of mortgages, and other helpful information.

How Student Loans Impact Mortgage Lending

Student loans have been making it difficult for many buyers to get a mortgage to buy a home.  This is the case especially with many millennial home buyers.  The pressure on millennials to go to college and obtain a degree is higher than ever.  This is leading to significant student loan debts and is having a huge impact on their ability to buy a home.
Certainly a buyer must have solid employment history, a strong credit score, decent income, and some assets, but a lender is also going to review a buyers debt to income ratios to make sure they are within the programs guidelines. The biggest impact that student loans are making on mortgage lending is that they must be included in a buyers monthly debts.  The percentage or dollar amount of student loans that must be included in a buyers monthly debt does vary depending on the type of mortgage they are attempting to secure, which will be covered below.
For example, to understand how student loans impact a buyers debt to income ratio, imagine a buyer has a monthly income of $3,000.  This buyer has monthly debts of $500 prior to their student loans, which would give this buyer a debt to income ratio of roughly 16%, which is very good.  If a buyer has another $500 in monthly student loan debt, this brings their total monthly debts to $1,000 which also raises their debt to income ratio to roughly 33%, which does not leave a lot of room to factor in a monthly mortgage.

Student Loan Repayment

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There is no secret that student loan payments are important and not paying them on time can be a big reason why a mortgage is denied.  Since many student loans are backed by government agencies, if you were to apply for a government backed mortgage and there were delinquencies, the chances of getting approved for a mortgage are slim to none.
There are several student loan repayment plans that can be taken advantage of and each one can have an impact on specific types of mortgages.  Income driven repayment plans, income sensitive repayment plans, extended repayment plans, and graduated repayment plans are some of the most popular plans.  It’s important that if you’re going to be buying a home and have student loan debt that you consult with a mortgage professional to see which plan would be best without jeopardizing your ability to purchase a home.

How Do Student Loans Affect Specific Types Of Mortgages

There are lots of different types of mortgages that buyers have the ability to choose between.  It’s very important that when buying a home a buyer understands what type of mortgage is best for their individual situation.  Student loans may make a dramatic impact on deciding which type of mortgage is best for their situation because they affect different mortgage products differently.
Below you will find out how student loans affect specific types of mortgages.  As you decide which type of mortgage is the best for your situation, keep in mind if you have student loans what impact they may have.

Veterans Administration Loans (VA Loans)

Student loan debts have an impact on VA loans and it’s important that if you’re considering a VA loan to purchase a home, you understand the potential impact they can have on the chances of getting a loan.  Since student loans generally impact a potential borrowers debt to income ratio, VA loans have guidelines whether they will be counted towards a monthly debt to income ratio or not.
If a student loan payment is due within the first 12 months after closing, a lender will be required to include it in the monthly debt to income ratios.  Another scenario where student loans must be counted towards the debt to income ratios is when student loans are in forbearance or if they’ve been deferred due to a hardship.
If a loan has been in deferment for three years a lender can typically use zero towards a buyers monthly debt to income ratio.  Documentation is required in all cases, but if no documentation can be obtained, a lender will use a payment listed on the borrowers credit report or 5% of the balance of the student loans divided by 12.

United States Department of Agriculture Loans (USDA Loans)

USDA loans, traditionally, do not permit any type of deferred, income-based, or graduated payment scenarios.  Most lenders will require a documented fixed payment to be used in qualifications.  If a lender cannot obtain a documented fixed payment, USDA will require that 1% of the loan balance that is documented on the credit report as the monthly payment.  Even if there is a payment listed on the credit report, USDA requires that the payment listed is fixed.
If the proper documentation cannot be provided, a buyer who has to use 1% of the total student loan balance reported on the credit report, can be impacted severely.  For example, if the proper documentation cannot be provided and the credit report shows a total of $50,000 in student loan debt, the lender must use $500 towards the buyers USDA qualifying debt to income ratio.

Conventional Loans

Generally speaking, conventional loans have fairly flexible guidelines when it comes to mortgages.  The same can be said for student loans and their impact on conventional loans.
For conventional loans, the monthly payment amount for student loans used for qualifying can be any of the following;
  • Payment shown on credit report
  • If loan is deferred, 1% of the outstanding balance
  • Direct verification from the student loan provider
  • Documentation provided by the borrower confirming the actual payment

Federal Housing Administration Loans (FHA Loans)
FHA loans are one of the most popular types of loans, especially for first time home buyers.  Since so many first time home buyers utilize FHA loans, the guidelines for student loans are pretty strict.  Recent guidelines have been put into place for borrowers who are obtaining an FHA loan.
Regardless of the payments that are listed on a borrowers credit report or documentation of an income-based repayment/graduated payment, FHA requires that lenders use 1% of the outstanding balance on the credit report.  Even if a borrowers loans are in deferment, lenders must still use 1% of the outstanding balance towards monthly debt to income ratios.
Recently while selling a home in Houston, TX, a buyer was turned down at the last minute because the changes to the guidelines.  The buyer no longer was able to qualify for the property since FHA had to use 1% of the total outstanding balance in their qualifying ratios.

Tips For Getting A Mortgage To Buy A Home With Student Loans

Now that you’ve learned about the impact that student loans have on getting a mortgage to buy a home, don’t feel that the task is impossible.  With the proper preparation and following the correct tips, you can get a mortgage to buy a home even with student loans.
Below are some excellent tips for getting a mortgage to buy a home with student loans.
  1. Prepare – It’s recommended when buying a home, whether you have student loans or not, that you prepare.  If you’re buying a home and have student loan debts, it’s suggested to begin saving for a home at least 12 months in advance.  Buyers who have a larger amount of money saved will appeal to lenders much more than a borrower who is attempting to buy a home with little or no money and with student loans.
  2. Pay Off Debts – It’s not realistic to pay off student loan debts immediately after finishing up with school.  Paying off debts does not necessarily have to be the student loan debts.  Paying off small debts such as credit cards can make a big difference in a buyers monthly debt to income ratios.
  3. Reduce Living Expenses – A buyer who is able to reduce their living expenses, such as entertainment and dining, will be able to save money quicker than one who does not reduce their expenses.
  4. Avoid New Debts – Too many buyers who have student loans think it’s a great idea to add additional debts, which is completely false.  If you’re buying a home and have student loans, it’s highly recommended that you avoid all new debts.  This may mean waiting to buy a new car or get a new television.
  5. Improve Income – Everyone would love to get a huge raise at their job and make more money.  This isn’t always possible though, but there is nothing stopping you from getting a part time job to put more money in your pocket.

 Final Thoughts
Getting a mortgage while having student loan debts can be tricky, as you can see from the above information.  It’s important that if you’re buying a home and have student loans, that you understand how they impact the different types of mortgages.
It’s always best to get a mortgage pre-approval before shopping for homes, especially if you have student loan debts because they can significantly impact mortgage qualifying.  It’s recommended to consult with a top mortgage consultant about how your student loan debts may impact getting a mortgage when buying a home.

Other Top Mortgage & Home Buying Resources

Are you buying a home in the Houston area and have student loans? Wondering how they will impact your ability to purchase a home?  If you don’t have a top Houston, TX real estate agent or top Mortgage consultant yet, please contact me, and I’d love to help you get pre-approved for a mortgage to buy a home!  It’s critical that you have quality representation when making one of the biggest purchases that you will ever make.

About the authors: The above article  “How Student Loans Affect Getting A Mortgage When Buying A Home” was written by Andres Jones of the The Jones Team at Realm Real Estate Professionals.  With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.

We service the following Greater Houston areas: Sugar Land, Missouri City, Katy, Cypress, Pearland, Spring, Stafford, Richmond, Rosenberg, Fulshear, Woodlands, Conroe, Humble, Kingwood, Crosby, Baytown, Beaumont, and Galveston, TX

First Time Home Buyer Tips and Advice

First Time Home Buyer Tips and Advice That Must Be Read!

Whether purchasing a car for the first time, a home for the first time, or anything for that matter for the first time, it can come with much confusion, a high level of uncertainty, and even some stress.  The home buying process is often seen by many as a “daunting” process.  This doesn’t have to be the case though, if the proper preparation and research is done.

Each and every person who purchases a home normally will have different experiences, hurdles to overcome, and ultimately have their own opinion on the home buying process, so beware of many opinions when talking with family, friends, and co-workers.  Even though the majority of home buyers are different, the home buying process is usually the same.  There is a general outline that should be followed when buying a home for the first time.

Here are several first time home buyer tips and some advice to help make the process of purchasing a home for the first time much less stressful and seamless!

How Much Can You Afford

Whether a consumer is purchasing a car for the first time, a home for the first time, or a set of golf clubs for the first time, it’s important to know how much can be afforded!  This is an extremely important part of the home buying process.  Many first time buyers don’t realize or understand that it’s extremely important to know how much they can afford before looking at homes!  It’s common to have first time home buyers contact real estate agents and get upset when they are educated on the importance of finding out how much home they can afford before getting out into the marketplace!  It’s important that a first time home buyer understands what the costs of buying a home are but also why they are involved.

Not only is it important for a first time home buyer to know how much they can afford, but it’s also important to understand the difference between a pre-qualification and a pre-approval.  

First and foremost, a pre-approval is more attractive to a seller than a pre-qualification.  A pre-qualification is a quick and very general overview of a first time buyers financial situation.  The information used for a pre-qualification is usually given to the lender by the potential mortgagee, which can often be inaccurate.  In addition to the general overview of the first time buyers financials, the lender usually will pull a credit report to make sure the credit scores are within the required guidelines of the different loan programs.

A pre-approval is a detailed look into a first time buyers financials.  It includes a lender pulling a fact data (Tri-merge) credit report, collecting the first time buyers pay stubs,  W-2’s, verifying their employment, and any other information needed to approve the buyer.  This process may sound much more difficult, but depending on the lender that a first time buyer chooses, it doesn’t have to be!  Having a pre-approval instead of a pre-qualfication is not only attractive to a seller, but also can be the difference in a first time buyer winning in a multiple offer situation!

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Set Your Expectations

When buying a home for the first time, an extremely important tip is to make sure expectations are set.  By setting realistic expectations, the chance to be disappointed or let down is minimized.  So, what type of expectations should be set before purchasing a home for the first time?

Once a buyer knows how much they can afford, it’s important to figure out what will their money get them.  When buying a home for the first time, it’s important to do it with a purpose and a realistic goal in mind.  How big of a home can be afforded?  What style of home is desired?  What are acceptable locations of the home?  It’s important that first time buyers have a strong feeling on items like these but also a good idea on which items they are willing to be flexible with.  It is a great idea to prioritize these items in order of importance.

Buying a home with no expectations or goals in mind is no different than going to a grocery store with no list or budget.  By going to a grocery store with no idea what will be purchased often will end up in lots of wasted time walking around aimlessly and ultimately not getting the results that would be expected.  By having that strong grasp on the style of home, the size of a home, and other characteristics that are desired in a home will save a first time buyer lots of time and also ensure they are purchasing their first home while staying within the range of what they are able to realistically afford.  It makes no sense for a buyer who is pre-approved for a loan amount of $150,000 to look at local luxury homes.  A great real estate agent should be able to help a buyer set realistic expectations.

Learn About the Home Buying Process

The home buying process is exactly that, a process.  There are certain steps that need to be taken to ensure the process of buying a home for the first time, goes smooth.  By understanding the process, it greatly reduces the chance that a buyer is disappointed, let down, heartbroken, or frustrated.  There are many things that a first time buyer should be doing before looking for homes, such as getting a pre-approval, but also many things that a buyer should be doing once they are under contract on their future home.  Many first time home buyers don’t understand why it generally takes 60 days from contract to closing.

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Get Educated on the Local Real Estate Market

When purchasing a home for the first time, it’s important a buyer understands the local real estate market.  There are many ways this can be accomplished.  The internet has completely changed the way the real estate industry works in 2017!  There is so much information available on the internet that can certainly help a buyer understand the local real estate market.  The internet is great for providing a wealth of information, however, it’s also important a buyer understands that not everything that is on the internet is true.  Really it isn’t!  There are many third-party real estate websites on the internet that provide some very inaccurate information.  A perfect example of inaccurate real estate information are the “Zestimates” that Zillow provides to consumers.  The inaccurate information provided by these third-party real estate websites is not only specific to the Houston, TX real estate market.

The best place for a first time home buyer to get educated on the local real estate market is by a local real estate professional.  If someone was looking to have a dental procedure done, they wouldn’t go on the internet to look how to do the procedure or call their chiropractor.  They would call a local dentist for their assistance.  A person in Houston, TX  who is in need of a dental procedure would have no use for a dentist in Lake Charles, LA.  The same can be said for a first time home buyer.  A first time home buyer in Lake Charles, LA should not be looking to a real estate agent for information on the Houston, TX real estate market.  It is important for a first time home buyer sit down with an experienced and knowledgeable local real estate agent to ensure they have a strong understanding of the local market!

Selecting a Real Estate Agent

Buying a home is a very large event in life.  It’s not something that should be done without the help of a trained real estate professional.  There are many things that a real estate agent is responsible to ensure are getting completed accurately and timely throughout the transaction.  Ensuring a buyer has secured a pre-approval from a reputable lender, ensuring contract dates are being followed, and negotiating on the buyers behalf to get them the best price for a home are just a few items that a buyers real estate agent is responsible for!  Without this guidance, it’s very easy for a first time buyer to make a mistake that can cost thousands of dollars.

There are many questions that a first time home buyer should ask a real estate agent, before selecting them!  It’s common and understandable that a first time home buyer has more questions than someone who has purchased 5 homes.  So, would it be a good idea for a first time home buyer to select a part-time real estate agent?  Probably not!  To be a successful real estate agent, there are many long days (and nights), which many times cannot be accommodated by a part-time real estate agent.  In addition to whether an agent is part-time or full-time, other great things to ask a real estate agent is; How many sales do you complete a year?  In what ways can/do you communicate?  Can you provide me with some references or testimonials?

There is often a general consensus that the real estate profession is one that can be done by anyone and that it’s “easy-money.”  This is very far from the truth.  There are people entering and exiting the real estate profession on a daily basis.  This is why it’s extremely important that a first time buyer asks any potential agent that they are thinking of selecting these difficult questions.

Are There Any Incentives or Grants Available

First time home buyers are often able to take advantage of first time home buyer grants or incentives.  It’s important that a first time buyer understands that every lender is different.  From the interest rate they are able to offer, the type of loan products they offer, to the incentives or grants they are able to offer.

A lender who may not offer a grant to first time home buyers, may never mention it.  When selecting a lender, it’s a good idea for a first time home buyer to research all of their options.  It sometimes is a good idea to reach out to a local real estate professional before locking into a local mortgage lender.  A great real estate professional should be able to understand a first time buyers situation and be able to suggest reputable companies who may offer the best type of product and/or grant for that buyer.

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Consider All Expenses Involved in Owning a Home

Many first time home buyers make the mistake of not considering the costs of owning a home.  It’s common that a first time buyer purchases a home that is the absolute maximum they can afford according to a lender.  This can lead to problems once the buyer realizes the other expenses involved in owning a home.  First time home buyers often forget about additional expenses of utilities, furniture, appliances, insurance, and groceries, to mention only a few.

A first time buyer who doesn’t consider these additional expenses often will have to change their lifestyles, which can be difficult for some.  Instead of living with mom and dad who had cable TV and high-speed internet, they may now have to live without these luxuries.  Bottom line, a first time home buyer must consider all the expenses and possible changes to their current lifestyle that may occur once owning a home!

The above advice and tips are extremely important to a first time home buyer.  By understanding these tips, it can make the process not seem as “daunting” or difficult!  A first time buyer needs to understand and feel comfortable with the professionals they are working with that “no question is a dumb question!”  

About the authors: The above article “First Time Home Buyer Tips and Advice” was written by Andres Jones of the The Jones Team at Realm Real Estate Professionals. With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.

We service the following Greater Houston areas: Sugar Land, Missouri City, Katy, Cypress, Pearland, Spring, Stafford, Richmond, Rosenberg, Fulshear, Woodlands, Conroe, Humble, Kingwood, Crosby, Baytown, Beaumont, and Galveston, TX

What Are The Best Ways To Improve A Credit Score?

What Are The Best Ways To Improve A Credit Score?

One of the most important steps to buying a home is getting approved for a mortgage. One of the biggest factors as to whether a buyer gets approved for a mortgage are their credit scores.
A buyers credit score impacts whether or not a buyer can obtain a home loan or not, first and foremost.  In addition to the impact a buyers credit score has on their ability of getting a mortgage, it also can greatly impact the mortgage interest rate a buyer is able to receive.
A buyer with an impeccable credit score can expect to have a better interest rate than a buyer whose credit score is average.  In fact, the difference in a mortgage interest rate can vary sometimes as much as 1.5%, which will make a huge difference in the amount of interest paid over the life of the home loan.
Since the mortgage approval process is one of the most critical steps to buying a home, it’s vital that buyers position themselves in the best possible place before discussing mortgages with a lender.  Buyers who have strong credit scores greatly improve the chances they’re able to get approved for a mortgage and get the best interest rate.
If you’re wondering how to improve your credit score in order to buy a home, below are 12 tips for doing so.  Following these tips can take credit scores from average to amazing, which will go along way in the mortgage approval process!

How Do Credit Scores Work?

Before we dive into the 12 tips to improve your credit scores in order to buy a home, it’s first extremely important that you understand how credit scores work.  One of the top mortgage mistakes made by home buyers is not reviewing their credit report and scores.
The first thing that needs to be understood about credit scores is the impact it can have on consumers.  A persons credit score is a reflection of their creditworthiness.  Mortgage companies review credit scores to help determine whether lending money to someone is a safe investment.  In addition to mortgage companies reviewing credit scores, others who look at credit scores include car dealerships, credit card companies, cell phone companies, insurance companies, and even potential employers.
As you can see, credit scores impact many things for consumers!  It’s important to also understand how credit scores are calculated.  A persons credit score is calculated by taking into consideration 5 categories.  The 5 categories that makes a credit score are payment history, debt percentage, length of credit history, new accounts/credit requests, and the type of credit accounts, often referred to as credit mix.
The weight, or percentage, of these 5 categories which add up to 100% will vary depending on the credit bureau.  The 3 credit bureaus in the United States are Equifax, Experian, and TransUnion.  The percentages for the 5 categories are generally as follows;
  • Payment History – 35%
  • New Accounts/Credit Requests – 10%
  • Length of Credit History – 15%
  • Total Debt Percentage – 30%
  • Credit Mix – 10%

The highest credit score that can be obtained is an 850.  Consumers with credit scores under 600 are often considered risky borrowers while borrowers with credit scores of 720 or greater are considered very solid borrowers.

Credit Scores & Mortgage Approvals

As mentioned above, credit scores can impact the ability of getting approved for a mortgage for buyers as well as the interest rate.  While preparing to get a mortgage to buy a home, it’s important to understand what lenders are typically looking for in terms of a potential borrowers credit score.

Mortgage lenders have different guidelines when it comes to minimum credit scores.  Some lenders will approve a buyer with a 600 credit score while others require a 640.

Buyers often wonder which type of mortgage is best and it’s important to keep in mind that each buyers circumstances are different so the best way to find out if they’re able to get approved for a mortgage is to speak with a local mortgage lender!

What Are The Best Tips To Improve Your Credit Score In Order To Buy A Home?

Whether a buyer has a poor, an average, or an exceptional credit score, there generally is room for improvement.  Below are 12 of the best tips to improve your credit score which will come in handy if you’re looking to buy a home.

1.) Be Aware Of What Your Credit Scores Are

One of the more obvious tips to improve your credit score in order to buy a home is to be fully aware of what your credit scores are in the first place.  It’s surprising the number of consumers who have no idea what their credit scores are.
The internet has made it extremely easy for consumers to monitor their credit scores.  Free websites such as Credit Karma, allow consumers to continually monitor their credit scores.
Credit Karma, and many other websites, have apps that are compatible with most smart phones.  These apps allow consumers to see their credit scores, total debt percentage, number of open accounts, credit history length, and number of recent credit inquiries.

2.) Get Current On Any Delinquent Accounts

Just because someone misses a payment on a bill doesn’t mean that they should forget about it.  Another tip for improving credit scores in order to buy a home is to get current on any delinquent accounts.
Catching up on late payments can increase a credit score relatively quickly once a credit report reflects the payment.  Accounts with missing payments can destroy a buyers credit score so it’s important to stay current on all accounts!

3.) Dispute Any Errors On Your Credit Report

Yes, you’ve read that correctly, it’s very possible there can be errors on credit reports.  It’s extremely important that if there are any errors on your credit report, you dispute them.
Disputing errors on a credit report can be done pretty easily nowadays, thanks to the internet and technology.  Most creditors allow consumers to dispute errors online and the review process is much quicker nowadays when comparing to 10 years ago.

4.) Eliminate Disputed Accounts From Your Credit Report

While the internet has made most peoples lives easier, it also has increased the number of people who’re having their identities stolen.  It’s not uncommon for a credit report to have accounts on them that’re actually not supposed to be on them.
If there are incorrect accounts on your credit report, it’s extremely important they’re removed.  Removing disputed accounts from a credit report can improve a credit score relatively quickly.
The best way to get a disputed account removed from a credit report is to contact the creditor directly.  It’s likely the creditor is going to request some type of proof, which in the case of identity theft, is some type of relating documentation.

5.) Pay Off or Lower Balances On Accounts With Small Balances

It’s pretty common for mortgage lenders to require home buyers who have average credit scores to pay off accounts with small balances.  The reason mortgage lenders require home buyers to pay off accounts with small balances is because it changes their income to debt ratios.  A buyers income to debt ratio is a factor that can have a large impact on mortgage pre-approvals.
If you’re unable to completely pay off accounts with small balances, lowering the balances can also go a long way with improving your credit score.  It’s recommended that before paying off or lowering balances with small balances, you discuss with a mortgage lender to make sure you’re selecting the best accounts!

6.) Pay Off or Lower Balances On Accounts With High Interest Rates

It’s possible that paying off or lowering balances on accounts with small balances is not the best option but rather you target accounts with high interest rates!  Paying off or lowering balances on accounts with high interest rates can be a great way to improve your credit scores.
Depending on the type of account, it’s feasible that you’re paying crazy amounts of interest on monthly bills.  For example, some credit cards have interest rates of 20% or higher!  Paying off or lowering the balances on these high interest accounts can potentially mean extra money each month to use towards a down payment on a home.
A great tip for saving for a down payment for a home is reducing monthly debts and not throwing away money each month to pay interest on bills is a great way to accomplish this!

7.) Pay Bills On Time

Paying bills on time may seem like a silly tip for improving a credit score because it’s so obvious, but it needs to be discussed.  Another important tip for improving your credit scores is to pay all bills on time.
Since payment history is the category that is weighed the heaviest, simply making on time payments will go along way to improve your credit score.  If making a payment on time is not feasible, it’s important that it’s not ignored!
Consumers who cannot make a payment for whatever reason just decide to not make a payment, which is a mistake.  It’s suggested that if you’re unable to make an on time payment that you contact the company or organization to give them the heads up.  Most companies will often work with consumers to setup a payment plan that is acceptable to both parties.

8.) Don’t Close Old Accounts

Seeing as credit history is one of the determining factors of credit scores, closing old accounts can actually do more harm than good.  If you have old credit cards that haven’t been used in years, DO NOT close these accounts.  By closing old accounts, you could be potentially hurting your credit history length.
For example, if you have an average credit history of 6 years and decide to close a credit account that’s 10 years old, you’re credit history is likely going to be less than 6 years after closing the 10 year old account.  It’s important to realize that if you have old accounts, especially credit card accounts, that you use these accounts periodically to avoid them being closed by the company automatically.

9.) Don’t Keep Opening New Accounts

Many consumers believe that opening new accounts will improve their credit scores.  Opening new accounts can actually do the complete opposite and can destroy a credit score, so to improve your credit score, don’t keep opening new accounts!
Why does opening new accounts hurt a credit score?  One of the reasons opening new accounts can hurt a credit score is because when a new account is opened, generally, a credit inquiry is pulled.  Too many credit inquiries can negatively impact a credit score.

10.) Open Secure Credit Lines, Only If Necessary

There are some circumstances when a potential home buyer doesn’t have enough credit lines showing on their credit reports.  In this case, it maybe necessary to open a new credit account.
Mortgage lenders who’re working with potential borrowers who need to improve their credit scores by opening new credit lines will typically suggest secure lines of credit.  A secured credit line is one which a borrower uses an asset as collateral to secure the account.
Mortgage lenders will often suggest secured credit cards to borrowers who don’t have enough established credit lines.  Once a buyer obtains a secured credit card, lenders will suggest making small purchases each month and paying off the balance each month.  By doing so, a borrower can improve their credit score by making on time payments and also is establishing a credit line in the process.

11.) Work On Your Credit Utilization Percentages

Credit utilization percentages impact consumer credit scores, so it’s vital you’re aware of your percentages.  Generally speaking, consumers with credit utilization percentages of 10% or less are consider to have excellent ratios.
To improve your credit scores, it’s important that you always keep your credit utilization percentages in mind.  If you’re planning on making a large purchase and have the option to use cash or a credit line, it’s suggested you use cash.  Making a large purchase on a credit card can drastically change a borrowers credit utilization percentages.

12.) Contact A Professional To Help With Improving Your Credit Score

Discussing your financial circumstances with others is sometimes not the easiest task.  The above 11 tips for improving credit scores in order to buy a home maybe exactly what you needed to learn about, but this may not be the case for everyone.
If you’re struggling to improve your credit scores, it maybe time to contact a professional to help improve your scores.  There are businesses and organizations that are designed exclusively to help consumers to improve their credit scores.
As a Rochester NY real estate agent, anytime a potential buyer requests assistance with their credit, I always provide them with information for a local organization that can help.  The Consumer Credit Counseling Service of Rochester is an organization that’s designed to help consumers with their credit.

Final Thoughts

Before getting started in the process of buying a home, understanding the importance of credit scores is huge.  There are very few consumers who have a perfect 850 credit score, so being aware of these credit score improving tips above can go a long way.  If you’re looking to buy a home in the near future and are trying to improve your credit scores, following these tips will definitely help!

Other Helpful Home Buying & Home Financing Resources

Are you working towards the goal of buying a home in The Houston area?  If you’re in need of tips for improving your credit scores, the above 12 should provide a great start!  If you don’t have a buyers agent yet, contact us and we would be happy to help you get started with the process!

About the authors: The above article “12 Tips To Improve Your Credit Score In Order To Buy A Home” was written by Andres Jones of the The Jones Team at Realm Real Estate Professionals.  With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.

We service the following Greater Houston areas: Sugar Land, Missouri City, Katy, Cypress, Pearland, Spring, Stafford, Richmond, Rosenberg, Fulshear, Woodlands, Conroe, Humble, Kingwood, Crosby, Baytown, Beaumont, and Galveston, TX