If you are in the market for your first home, one of the first things you must do is determine how much house you can afford. Can your income support the $400,000 to $500,000 house of your dreams, or do you need to aim a bit lower? Should you stick to a more affordable starter home, or can you afford a bit more if you sacrifice some luxuries?
There are a number of things that go into the calculation to determine how much you can realistically afford to spend on that critical first home. You obviously need to know how much the home costs, but you also need to decide on the length of your mortgage. Is a 15-year loan, with its lower interest rate, doable, or will you need to go out 30 years to make the payments affordable?
The last, and perhaps most important, part of the affordability equation is the interest rate itself, and that part of the picture can be quite variable. Even when interest rates are at historic lows, some buyers will be charged more than others.
In most cases, the buyers with the lowest credit scores will be the ones paying the highest interest rates. Those higher interest rates can make even a humble starter home unaffordable, shattering the homeownership dreams of countless young families.
If you want to make home-buying more affordable, you need to take a hard look at your credit score. There are steps you can take to raise your credit score and ultimately lower the interest rate you will have to pay on your mortgage.
Even if you already own a home, you may be able to refinance into a lower interest rate mortgage, provided you can improve your credit score before you start the application process. By paying down your existing debt and working hard to make your payments on time, you can raise your credit score over time, and save thousands of dollars in interest charges in the process.
Raising your credit score is not something that can be done quickly, and it is not always easy. Over time, however, you should be able to raise your credit score significantly by paying down your existing debt, avoiding new debt, and paying all your bills on time.
You may be able to raise your credit score more quickly if you find an error on your credit report, so that should be your first course of action. Mistakes do happen, and when they do, your credit score could suffer unnecessarily. If you think your credit score is lower than it should be, pull a copy of your credit report and go over it carefully. If you spot any errors, like paid-off debts still listed as active, contact the credit reporting agency immediately and ask that the erroneous entries be removed. If you are successful, you could see an immediate boost to your credit score, and a similar reduction in your quoted mortgage rates.
For the vast majority of first-time homebuyers, purchasing a home means taking out a mortgage, and that means paying close attention to interest rates and credit scores. If your credit score is less than optimal, taking steps to raise it now could save you a lot of money over the next 15 to 30 years.