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How to Prepare Your Credit for a Mortgage Approval

If you’re eager to move into your dream home, preparing your credit for a mortgage approval should definitely be on your agenda. Laura gives six tips for building credit before you apply for a mortgage, so you get a loan that costs as little as possible.

By
Laura Adams, MBA
Episode #450
How to Prepare Your Credit for a Mortgage Approval

If you’re eager to move into your dream home, preparing your credit for a mortgage approval should definitely be on your agenda. It’s a key factor for getting the best, low-rate loan for your new home.

But building credit doesn’t happen overnight—early preparation is critical. In this post I’ll give you 6 tips for building credit before you apply for a mortgage, so you get a loan that costs as little as possible.

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Benefits of a Getting a Low-Rate Mortgage

No matter if you’re a seasoned homeowner or are looking for your first property, improving your credit scores ahead of a mortgage application can pay off big time.

Here’s an example: Let’s say you get a $250,000 fixed-rate mortgage for 30 years at 4% interest. Your monthly payment for principal and interest will be about $1,200. But if you get the same mortgage for just 3% interest, you’d pay close to $1,000, saving nearly $200 per month.

If you keep that loan for the full 30-year term, paying just 1% less in interest would allow you to save $50,000, instead of needlessly paying it to your lender!

See Also: 7 Credit Score Traps to Avoid

6 Tips to Prepare Your Credit for a Mortgage Approval

Before you pull the trigger on a mortgage application, use these six tips to prepare and build your credit scores:

Tip #1: Check your credit reports

When you’re shopping for a mortgage, lenders review your entire credit reports(s), not just your credit scores. So the first step to getting a great home loan is to get familiar with what’s currently on your credit reports with the 3 nationwide credit bureaus: EquifaxExperian, and TransUnion. Always know know what’s in your credit history before a potential lender does.

Federal law requires the big bureaus to give you a free credit report every 12 months if you request it. You can get reports from each of the bureau websites or access all of them at Annualcreditreport.com.

Your credit scores are based entirely on the information in your credit reports, such as your account balances; payment history; and legal information like liens, judgments, and bankruptcies in your past. That’s why it’s so important to make sure your credit reports are correct.

You probably won’t know which of your credit report(s) a mortgage lender will examine and they could they look at all of them. So I recommend that you review all 3, especially if you’ve never pulled them or it’s been a while.

One piece of information that you won’t see in your credit reports is your credit score, which you typically have to pay for. However, I’ll mention some terrific resources to get free credit scores in just a moment.  

See also: Best Tips to Improve Your Credit Score

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a trusted and frequent source for the national media. Her book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show. 

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