Follow This Timeline To Maximize Your Chances Of Getting A Great Rate On A Home Loan
Whether you're buying a home or are looking at home equity loans to complete a major home improvement project, taking out a home loan can be complicated, time consuming, and stressful. The key to successfully navigating this process is to plan well in advance, divide everything you need to do in small steps, and tackle each hurdle one at a time. Try to stick to this timeline as closely as possible.
As Soon as Possible
Set your budget. Determine the total price for your ideal home or the home improvement project you'll be taking on. Then use an online mortgage calculator to determine your monthly payments.
Are the payments too high? You'll need to start saving for a higher down payment to lower them or find a way to reduce what you'll be spending.
12 Months Out
First, stop applying for new credit. This includes new credit cards, car loans, personal loans, and opening new utility accounts.
It doesn't matter how great the credit card signup bonus is or how much you hate your current cable provider. Credit inquiries damage your credit score for a year and will cost you more in additional interest than what you'd gain by opening new credit.
Second, pull your credit report to check for errors and see what areas you need to improve on. Ideally, you'll request a report from all three credit bureaus.
However, you can only request a credit report for free once per year from each bureau. If you're on a tight budget, only request one bureau at this point because you'll be requesting additional credit reports later on.
6 Months Out
By this point, you should have had any errors removed from your credit report. If negative items are still on your credit report, try to get them off.
Negative items can often be removed by asking the bank nicely and explaining how you learned from your one-time mistake. This is especially true in the case of single late payments. Offering to pay an outstanding balance in exchange for removal often works as well.
Pull another credit report to check your progress — either all three or one from a different bureau if you're going the free route.
3 Months Out
Pay down your credit cards as much as possible to maximize your credit score. Ideally, you want every card but one with a $0 balance at the statement date, and the remaining card should only have a small balance that you pay as soon as you get the statement.
Finally, pull one last credit report to make sure everything is ready for you to begin applying for loans. For additional help, contact a financial center like MCS Bank.