You picked out your dream neighbourhood, you’ve started saving up, and you feel ready to take on the responsibilities of home ownership.
As soon as you reach this point and know you’re ready to take the leap and buy a house, the smartest thing you can do is get your credit in order, Sophia Bera, CFP and founder of Gen Y Planning, told Business Insider during a Facebook LIVE.
“A big thing when it comes to your mortgage is being able to qualify for the best interest rate you can,” she says. “Think about it: If you’re going to have this loan for the next 15 to 30 years, you’re going to be paying a ton of interest, tens of thousands if not hundreds of thousands of dollars on that loan. So a difference in interest of a quarter of a per cent or half a per cent or one per cent makes a huge difference over the life of the mortgage.”
Start by checking your credit score and ordering a full credit report. Bera recommends going to AnnualCreditReport.com, where you can order one free credit report from each of the three federal credit bureaus annually. To keep tabs on your credit score throughout the year, she recommends monitoring free sites such as Credit Karma and Credit Sesame.
Bera also says that it’s worth paying a small fee to get your FICO score when you’re preparing to buy a house. FICO scores are additional credit reports widely used by lenders to determine interest rates, and a high FICO score can help you secure the most reasonable ones.
Once you know where you stand in terms of credit, you can get an idea of how good of an interest rate you’d be able to qualify for on a mortgage. If your credit score sits at 700 or higher, you’re probably in good shape to get the best interest rates out there, Bera says. But if it hangs below that, work on paying down debt and taking care of any old debts that might have ended up in collections.
“Really pay attention to credit, especially in the six months leading up to getting ready to buy a home,” Bera says. “This is not just a month before, scrambling and then realising, ‘Oh my gosh, I have something old in collections!’ Once you take care of that it usually takes a couple of months to be reflected on your credit score.”
At the end of the day, your credit score can play a huge role in your housing budget. If you’re planning to buy a house in the near future, start getting that in order right away.
Watch Bera’s full Facebook LIVE interview below:
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