If you have never owned a home before or it’s been a few years since you have, you’re missing out on credit advantages. That’s right, when you buy a home you automatically become more credit worthy. Remember these tips when inking a real estate deal…
Recorded Legal Transaction
When you rent, you have an agreement between you and your landlord. This is a private document between both parties for the purposes of renting a dwelling. Unlike renting, buying a home is a larger scale transaction as your details become publicly known.
Upon closing escrow, pertinent identifying information becomes public record. Your name, address, bedrooms, bathrooms, square footage, lot size, parcel number, and sales price is entered into public county records making you a target for credits offers. The belief is buying a home means you have your financial house in order and are more likely to spend. Here’s what to do visit https://www.optoutprescreen.com/, there you can significantly cut back on the direct mail.
Loans Affects on Credit Score
A mortgage loan is the largest debt most people carry in their life. As a result, it’s no coincidence that no other credit obligation can make your credit score improve or worsen the way a mortgage can. It is not unreasonable to expect an increase of 40 points in your credit score if you have not had a mortgage in the last several years and subsequently get one via buying a home.
You might have various forms of credit including credit cards, auto loans, personal loans or student loans for example and when managed correctly are all very good ways to build, maintain and keep a healthy credit score. A mortgage however, carries monumental importance to each credit bureau. Trans Union, Equifax, Experian, all validate a mortgage loan to be the most important and highly rated debt you can have, which if managed properly will do wonders for your credit score, both immediately and over time.
This is exactly why a previous home that was given back to the bank, an old short sale, deed in lieu or mortgage late, will tank a credit score. If any one of the scenarios has happened to you, the best thing you can do beyond keeping your balances check in relationship to credit limits, and paying your bills on time without any missed payments, is time. Building a more stable credit history which takes time, can do wonders for your credit. Generally, expect three years out of the previous credit event to be mortgage eligible again which is plenty of time to rebuild blemished credit.
The Cost of Housing
The cost to buy a home and subsequently take out a mortgage payment for many these becomes true test of affordability. This has some variance, but at least $15,000 to buy a home if not more is needed along with showing ability to be able to handle a mortgage payment for the long haul. Both of these are support with income and asset documentation. When you elect to upgrade into homeownership, it is not just a mortgage loan that you are paying. Other home carrying costs come into playing driving affordability. First you will be repaying the loan based on principle and interest typically for 360 months on a 30 year fixed rate mortgage, as well as the property taxes, usually, based on 1.25% of the price you paid for the home. Additionally, to mitigate hazard liability, fire insurance is required. Lastly, if are working with less than 20% down, mortgage insurance comes into play, insuring the lender payment default. Depending on your financial situation, the cost of housing would work in the following way: principle and interest, taxes and insurance and in some cases mortgage insurance, PITI for short. It is known home affordability is a big separator between those who rent and those who ultimately can buy. Debt is another factor that creeps into the picture that needs to be supported with mortgage payment.
Let’s say you can afford a mortgage payment comprised of all various housing costs, while your credit could use a boost (by the way even with good credit, anyone could benefit from a credit boost brought by a home loan). In this scenario you are essentially financing a credit score, i.e. the interest you are paying current debt is the credit cost, just as you are when you are taking on any other form of credit, only the mortgage carries more credit bumping benefits. The consumer, who was able to get their foot in the door with an affordable payment, just became more credit worthy. The benefits remain. The cost of funds for other forms of credit will be lower; the opportunity to refinance for payment reduction could be dramatically beneficial in reducing mortgage interest expense along with removing PMI or making the cost of PMI lower. Either way, if you can afford a home have the means to do so, you are making a solid impact on your financial future.
This is not to convey if you rent for whatever reason, you will not have a good credit score. What this is representing is that if you own a home, and consistently make a mortgage payment, you have a tremendous credit score perks, renters don’t have, and that remains throughout the duration of your mortgage term. Think of making the mortgage payment on time as a shield against other credit challenges that may pop up in the future.
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