Everyone’s dream from being kids is to be a homeowner someday. The day you would finally have your own four walls that you can do whatever you want with is on everybody’s mind. In your mind, you would have drafted out a garage to put you own car, and a yard for your dog. The thinking becomes more intense now that you are an adult and you need to bring your dream to reality. You will be aware when you talk to friends and family that have once purchased their home that your credit score will be a large factor in your home buying experience. After being aware of this, how are you supposed to shop around without bringing your score down further with multiple credit checks?
Let’s start with a little background. What is credit? A credit score is a 3 digit number used by lending institutions to decide your loan-worthiness, or in other words, how much of a risk you pose as someone to lend money to. The higher your credit score, the more responsible your financial behaviours appear, and the more likely a lender is willing to give you credit (or a loan). Your credit score will also help determine not only your eligibility but also your interest rate. Having good credit doesn’t always help get great rates (many credit cards are high regardless of how great your credit is), but with a home loan, it definitely helps if you are in top tier credit.
What is Credit?
A 3 digit number used by lending institutions in order to decide your loan-worthiness or in other words, how much of a risk you pose as someone to lend money to is known as credit score. You will have more responsible financial behaviours with higher credit score and the more likely a lender is willing to give you credit or a loan. Another thing your credit score does apart from helping to determine your eligibility is to also help your interest rate. Having a good credit does not mean you will get great rates (many credit cards are high regardless of how great your credit is), but it will definitely help get great rates with a loan.
How is a credit score important to buying a home?
A lot of people do not have the cash to buy a home at a goal. This means, in buying a home, you will need to get a loan and while it may be possible to find a home loan without credit, it is not likely. You will have to exercise to the bank that you have the ability and responsibility to apay it back in order to obtain a more traditional home loan. Your credit score will be used by the bank among other factor to determine your eligibility.
Where do I start?
Before having your credit run or turning in an application, it may be wise to check on your own credit score to see where you may fall in the range. Some credit cards will have a credit tracking feature built into their “perks” where you can check on your credit score and also check for any discrepancies without affecting your credit. Websites like Credit Karma may also help, however, you will not want to rely solely on these scores as they can be somewhat inaccurate. The most accurate score you will receive will be when you run your application with a lender, however, if you run your credit too many times, this could come back to affect your score.
How to avoid having your credit run by lenders?
The number you obtained from the free and non-credit affecting source mentioned earlier can be used and you should provide it in your conversations with lenders. A lender does not need to run your credit before they are able to tell you from a single conversation whether they think you may qualify and for approximately how much.
If you provide your income, credit score, and monthly debts listed on your credit report, they should be able to give you a general idea of what you can do. After deciding on a lender that you feel comfortable with, you will then want to go through the whole application process, allowing them to run your credit so they can give you exact numbers and a preapproval. Most lenders will not give you an official pre-approval without first running your credit.