5 Ways to Prepare Your Credit for Homeownership

5 Ways to Prepare Your Credit for Homeownership

Most have been dreaming about finding their perfect forever home since they were children, but as college graduation ends and professional life begins - filled with student loan repayment, living expenses, those darn subscription boxes making it all too easy to spend, or even having yet to find a companion to share a home with - the dream of owning a home becomes lost and down right impossible. 

Although purchasing a house is an incredible financial accomplishment, it is indeed possible! Whether you’re single, newly married, just paid off all your debt or still working on it - there are several tips that can create home ownership more than a possibility: it can become a reality.

  1. Monitor your credit: There are a ton of handy free credit report tools available, Mortgage Advisor has a great free credit report tool that allows you to monitor your credit and credit activity. There is no excuse to not know what your credit score is or what is currently affecting your credit! Keep an eye out for your credit in order to know where your score is headed and how to ensure only positive changes are happening. 

  2. Get rid of those “Adverse Accounts”: Your credit report will let you know if you have any adverse accounts, as those will negatively affect your credit the most. Take care of adverse accounts as soon as possible. Keep in mind that “taking care of” adverse accounts doesn’t always mean you have to pay the entire bill in a lump sum. You may be able to talk to whatever bank is holding the debt to work out a payment plan. 

  3. What’s your DTI?: One of the most important factors for purchasing a home is calculating your debt-to-income ratio (DTI). Basically, if your car is paid off, you have no outstanding balances on your credit cards, and you have no student loans, then you have an impeccable DTI. If you are drowning in debt, then you have a poor DTI. You want your DTI to be less than 43%. This may take some time to fix, but stay calm. Sometimes, slow and steady wins the race, or just buckle down and not eat out every night for a few months or cut down your cable or phone plan, and you will be amazed at the difference it will make if you put that money saved into paying off debts. 

  4. Do not create more debt: When you’re trying to boost your credit and get rid of debt, you may be drawn to take out an additional loan to supplement the money you’re losing by paying off debts, or even consider taking out a large loan for debt consolidation. Avoid this! Most mortgage companies will take a look at how many loans you have and how new they are. Having new loans affects negatively on you due to an increase in your DTI. Just stay organized and pay off each loan or line of credit individually.

  5. Pay on time: Even paying your bill a day late can not only affect your credit score, but you may also be hit with a late fee - bumping your debt back up. Be sure to pay your bills on time, every month.