Pages Navigation Menu

Everything Personal Finance

7 Credit Report Tips When Applying For A Home Loan

Qualifying for a home loan is going to be a major stage in planning for your future, so it makes sense that you will want to do everything you can to ensure that things go smoothly. Many people are now aware of how credit inquiries can have a harmful effect on their credit score and are looking for ways on how to remove credit inquiries.

Lenders will be looking to find out how well you manage your finances, and ultimately, the risk in lending to you. Of course, your credit report and FICO scores are going to play a big part in this.

The following provides tips on handling your credit report to help you get the best possible terms on your next home loan.

1. Unlock any credit report freezes.

You need to ensure that you open any credit report freezes before beginning the loan process. Credit freezes can take some time to remove, so do this in advance. Make sure to remove them for all three of the major credit bureaus (TransUnion, Equifax, and Experian).

Failing to do this may delay the processing of your loan and create additional fees for rate lock extensions.

2. Clear up derogatory credit items.

Before looking for your new loan, pull up a copy of your credit report from all three credit bureaus and clear up any critical items reported. Collections, judgments, and charge-offs can all negatively impact your credit scores and prevent you from getting the best possible deal, or from qualifying in the first place.

3. Make sure home equity lines-of-credit are reporting as mortgages.

You do not want home equity lines (HELOCs) to be reported as revolving accounts – this is because if the balance is over 50%, your credit score could take a blow as you will appear to be “maxed out.” If your HELOC is reporting as a revolving account, call your lender ahead of time to ensure they are reporting as mortgages from now onwards.

4. Remove consumer statements.

If you have added a consumer statement to your credit report, it is best to remove it before the loan process – particularly if it is related to your mortgage. Keeping it may cause underwriters to request additional information that could otherwise be avoided.

5. Avoid taking on new debts.

If lenders discover that you have acquired any new debts during the process of getting the new mortgage, they will include this in your debt-to-income ratio (DTI). Bear in mind that if your DTI was already close to the maximum allowed by the lending guidelines, then adding to this could result in a loan denial.

Equally, do not co-sign for anybody while qualifying for a home loan. Newly co-signed debts will also be included in your DTI ratio, regardless of whether somebody else is going to be making the payments.

6. Make payments on time.

Ensure that you continue to make all debt payments on time as you move through the loan process, this includes payment of your mortgage. Lenders will often pull an updated credit report near the end of the process, and missed payments could jeopardize the loan.

7. Do not run credit reports.

If your report shows numerous inquiries since the initial credit report was run by your lender, it could pull down your scores and result in less favorable loan terms or even loan denial.