Thinking of refinancing or buying a house this spring to take advantage of record low interest rates? If so, you are not alone. In particular, home buying activity has reportedly picked up in most U.S. markets at a time when the inventory of homes for sale is very low.
This is creating a competitive environment in many communities. In turn, home prices are increasing and bidding wars are again becoming commonplace. The more qualified you are as a buyer, the better chance you will have of getting the house you want. By qualified, I mean that you are pre-approved with excellent credit ratings, and you have the ability to make a sizable down payment.
Don’t make the mistake of getting so caught up in house hunting, you wait until the last minute to do your financial homework. Spend time beforehand to make sure your financials and credit profile are up to date. You want your financial picture to be as attractive as possible when you meet with sellers and lenders. The same advice holds true if you are thinking of refinancing – you want to look as qualified as possible before interacting with prospective mortgage lenders.
From a credit perspective, you want to begin 30 to 90 days in advance of your refinancing or house hunting activities. Access and review your credit report and FICO Score at www.myFICO.com before you approach a lender or broker to get pre-approved. This will give you enough time to clear up any credit report errors and take selected actions to potentially increase your score.
- Ensure the information in your credit report is as accurate as possible. Inaccurate reporting could lower your score and make you look riskier than you really are. Follow the dispute resolution directions if you find errors on your credit report. By law, the credit reporting agencies have up to 30 days to resolve any disputes.
- Review the explanation that accompanies your FICO Score. Focus especially on the section about the most significant reasons why you are not scoring higher. Create an action plan to address these areas of focus that will help you increase your score over time.
- Think increasing your score won’t really help? Think again! Visit the interactive myFICO Mortgage Loan Rate Table [http://www.myfico.com/myfico/creditcentral/loanrates.aspx]to see an estimate of the savings in mortgage loan interest that you may be able to realize if you increase your FICO Score and qualify for a lower interest rate. For example, increasing your score from 679 to 700 could result in $8,000 in savings over the life of your loan ($225,000 30-year fixed).
For many people, purchasing a home is one of their most stressful experiences. While being prepared won’t eliminate 100% of the stress, it can certainly go a long way towards reducing it!
Tom Quinn is the Vice President of Business Development for myFICO, and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives.