Credit for buying a house

Buying a house is an exciting event.  And the excitement is there whether or not you are a first time home buyer or looking to upgrade your family into a larger home.

Although it is not fun, having the proper credit for buying a house will determine what kind of home you will be able to buy.  The better you credit situation is, the better time you’ll have qualifying for a loan with favorable terms.

Because buying a house is likely to be the largest purchase you’ll ever make, expect to receive an extremely thorough check of your credit before being approved.

First time home buyers: If you have never owned a home, this doesn’t mean that you will have a hard time finding sufficient credit to buy a house.  Because a potential lender can’t look at your payment history on a previous mortgage, they will want make sure that you are paying your rent every month on time.   Having a good down payment is also important for a first time home buyer.  Having at least 5% should put you in good position, but having 10% would be better; and if you can afford it, having 20% to put down is ideal because this way you won’t have to pay mortgage insurance (PMI).

If you are upgrading to a new home your lender will already have record of your payment history for the mortgage you already have with them.  It may even be easier for you to go with your current mortgage company and have them provide you with your new loan.  If you are happy with your current lender and they are happy with you, this is an easy way to access credit for buying a house without needing to do much shopping around.  You are likely to be in much better shape when it comes to making a down payment since you will probably be using the equity in your current home to improve your loan to value ratio.

Do you want to work with a mortgage company, a bank, or a credit union?  The answer to that question will depend on what interest rate and terms you will be offered by each of them.   Some of the items that you should be prepared to supply if you need credit for buying a home are listed below.

Be prepared to have the following:

• Tax returns for past two years (particularly if you are self-employed)
• Recent pay stubs (if you work for an employer)
• Recent bank statements (at least two months)
• Access to your credit report for a review of your payment history
• If you have blemishes on your credit, you may be asked to write a letter of explanation

Remember that when you get a loan that you will need to watch more than just interest rate and payment.  Will you have to pay points?  Is there a prepayment penalty on the loan?  These are the types of questions you will want to ask anyone who is potentially going to extend you credit for buying a house.