If you’re considering buying a home in Edina you’re no doubt surfing the Internet looking at homes (BIG mistake) and maybe reading advice about how to successfully purchase a home. What’s interesting is that, especially on real estate agent websites, the typical first suggested step is to find a real estate agent.
In reality, finding an agent to help you in the purchase of an Edina home is the third step in the process. All buyers should see a lender before hiring an agent and WAY before looking at homes for sale, either online or in person.
So, What’s the First Step?
You won’t like this. It’s not fun, like looking at houses. It’s not comfortable, unless you are really good with your finances.
Step one, if you hope to be able to afford a decent home with a comfortable mortgage payment, is to raise your credit score.
But My Score is Decent
I can’t tell you how many home buying clients come to me, itching to buy homes, who barely make it under the wire when it comes to credit scores. Sure, FHA says that all you need is a 580 to get that 3.5 percent down payment.
What they don’t tell you is that the loan that the FHA guarantees comes from a lender ― a lender that will charge you big-time interest rates because of your low FICO score. Those rates result in a higher monthly home payment ― which will already be elevated because of the 3.5 percent down payment and FHA’s mandatory mortgage insurance premium that accompanies it.
Boosting your score, on the other hand, can mean big savings on your monthly mortgage payment. According to FICO, a Minnesota borrower with a credit score of 700 to 759 might get a rate of 3.73 percent on a 30-year fixed rate loan. The borrower with a 620 to 639 score, on the other hand, would be offered a rate of 5.09 percent.
If you’re the low scorer in the above scenario you’ll pay $187 more a month on your mortgage payment than the high scorer, you will also pay $67,181 more in interest over the life of the loan.
If you were to raise your score to 640 you would end up saving more than $238,700. Raise it even higher, to 660, and you’ll save $42,000. Finally, if you can get that score up to 700 you will save more than $58,000.
As you can see, patience and a bit of hard work before you purchase a home definitely pays off.
How to Boost that Score
This one is easy: Concentrate on decreasing the amount you owe, paying bills on time and not chasing after new credit.
The experts at FICO suggest that you stop using your credit cards completely and pay down the balances.
Start paying off other debt that appears on your credit reports one-by-one; hack away at them and before you know it, those balances will be gone and your credit score will reflect the new, more financially responsible you.
Now you’re ready for step 2 of the home buying process – so strut into that Edina lender’s office and confidently ask the representative to pull your credit score.