The process of buying a home can be both exciting and intimidating. In addition to figuring out how to leave your current home, choosing where you want to live, and finding a lender, you will also need to figure out how to move. As a result of the sheer number of steps involved, it is easy to become misinformed about your credit and its role in the mortgage process.
Don’t believe these common credit myths when preparing to buy a home.
MYTH #1: YOU NEED IMPECCABLE CREDIT TO BUY A HOME
The reality: Strong credit can help you appear more attractive to lenders. You can find a loan and access lower interest rates, which can reduce your monthly payments and save you thousands of dollars over the loan’s lifetime. Although it is advisable to present the highest credit score possible, borrowers with credit scores in the 600s or below can qualify for mortgage loans.
Keep in mind that credit reports and credit scores are just one part of your overall financial picture. In addition to income and down payment, lenders can also look at your current debts and loan size.
That said, it is a good idea to get your credit in the best shape before you apply for a mortgage loan.
MYTH #2: ALL LENDERS OFFER THE SAME RATES AND SERVICES
The reality: You shouldn’t blindly choose the first mortgage lender you come across on Google or through your agent. By shopping around for the best interest rate, you can save a lot of money. You should evaluate multiple lenders before choosing the right one for you, since some lenders may be able to connect you with local loan programs or down payment assistance.
MYTH #3: SHOPPING AROUND FOR LOANS CAN HURT YOUR CREDIT
The reality: The inquiry into your credit will appear on your credit report and can cause it to dip slightly. But multiple credit checks from mortgage lenders in a short period of time can only be counted as one inquiry. Therefore, you can request multiple pre-approvals and loan estimates from multiple lenders, so that you can find the best loan for you, without affecting your credit.
MYTH #4: YOU NEED TO BE DEBT FREE
The reality. Getting approved for a mortgage is not affected by the type of debt you have. If you can show that you can manage your debt responsibly and pay it back, having debt shouldn’t be an issue. The bigger problem is your debt-to-income ratio, or how much of your income is currently used to pay debt. Low debt-to-income ratios indicate that you are able to obtain a mortgage, while high debt-to-income ratios indicate you are already overextended.
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