Buying A Home: You're Ready (But Is Your Credit?)

by Brandi Mankiewicz, Contributing Writer   

Home buying and loan image

Buying a home is the largest investment most of us will make in our lifetimes. It's a process filled with stress and anxiety.

Among the many things you need to think about as a home buyer is your personal credit. You want to make sure it's in good shape so you get the best deal on your mortgage. You also want to make sure your home-buying experience doesn't hurt your credit rating over the long haul.

With those points in mind, here are four crucial questions to consider:

  1. Do you know your credit history?
    It's important to see yourself the way mortgage lenders will see you. You're entitled to free annual reports from each of the three major credit bureaus, but you'll need to pay extra to obtain your credit score.
  2. Are you shopping realistically?
    Many first-time home buyers are surprised by how much (or how little) house they can afford. A common rule of thumb is that your home shouldn't cost more than 2.5 times your annual gross income.
  3. Have you banked enough?
    A larger down payment can result in a lower mortgage rate. Many lenders want you to make a down payment of about 20 percent of the total cost of the house. While you're banking money for a down payment, be sure to pay down the balances on your credit cards, too. That will improve your overall credit picture, which in turn can lead to a lower mortgage rate.
  4. Are you remembering all the details?
    Closing costs. Attorney fees. Home inspection costs. Appraisal fees. Mortgage insurance. The ongoing costs of home maintenance and any necessary immediate repairs. Not to mention utilities and taxes.

    Scared yet?

    Create a detailed budget. If there's a gap between costs and income, don't expect to fill it by using your credit cards. That's a recipe for credit disaster.

Keeping these questions in mind won't guarantee you the house of your dreams, but they'll help alleviate some of your stress in finding it — and can help you live comfortably in it for years to come.