My husband and I are wondering if it’s a good idea to buy a credit score(s) before we start trying to buy a house. We don’t know what our credit scores are, but think we’re both in the mid-to-high 600 range. We don’t care much about qualifying for the best possible rate, we’re mostly just concerned with getting approved in the first place. We’re first-time homebuyers, so this isn’t a process we’re super familiar with. Although I process mortgages at a local bank, I really have no idea about the pre-application process. I know enough to be dangerous (lol). Obviously we may need to do some work to get our credit in better shape, we’ll need to save money for a down payment… but I know there are also loan programs where we could get down payment assistance, or grant programs. I just have no idea where to start.
We’re also wondering how the mortgage interest deduction works for actual people/families. If you have any experience or hard numbers, and feel comfortable sharing, we would really appreciate it. Thanks! :o
Most of the advise I’ve heard says it’s a good idea. At the very least, sign up with one of the free services like Credit Karma to get some indication of what it is. CK is totally free with no hidden fees or hooks. You won’t be able to see your entire credit report, but they will point out any big negative points so that you can verify the accuracy of the data.
I can’t really see the point of spending money on it. Knowing your score ahead of time won’t change whether you get pre-approved or not. And if you are denied credit, they have to send you a letter saying why.
Signing up for a free service like Credit Karma is a fine idea to get a general sense of what’s going on with your credit files. But remember that the cheap scoring model they use is somewhat different than the more expensive ones used for evaluating mortgage applicants. But they will be in the same general area.
The mortgage interest deduction isn’t complicated. Your bank sends you a Form 1098 at the end of the year saying how much interest you paid. You can subtract that amount from your taxable income. For an average family it might lead to a couple hundred bucks in tax savings. Don’t go buying a yacht just yet.
If you get your credit score you’ve got two choices:
Look at it and say “well that’s interesting.”
Do something about raising it.
If you want to do option 2, you need your credit report. That’s where you can find errors and challenge them or (as many people do) find non-erroneous but unfavorable entries and challenge them, too.
Right, but that doesn’t include the score. And if you’re denied credit because of your score, I don’t think they have to tell you what the actual score is.
What I’d like to know is this: Is it possible to find a broker who will at least be able (or willing) to tell you exactly how differences in your credit score will ultimately effect the terms of your loan in advance?
I’m wondering about this because in some situations, I believe, one can improve one’s credit score by paying off certain debts, and that might be worth the expense if it can get a lower home loan rate, right?
No, because your numeric score is only one factor used to determine the offered terms, and for fairly bespoke products like mortgages it’s actually a rather minor one. Rest assured, your full credit history will be pored over in great detail by at least 30 cube drones in six different offices when it comes time to close a mortgage. Oh and your bank accounts, paystubs, tax returns, blood type, and porn searches too.
That’s why it’s a good idea to get your full reports, which you can do for free, and make sure everything’s in order there. If it is, you don’t need to worry about what your FICO score is.
I’m not sure what the big mystery is here, you can get your full credit report and your FICO score from most mortgage brokers. It does cost them some money to request a report. We normally charge $35 to people applying for leases.
I don’t get why people are making this so complicated. Pull your credit report (can do it once a year for free), contest and/or fix any negative stuff, then apply for the pre-approval. Every mortgage broker I’ve worked with has been happy to look at my financial situation and talk about whether it might be better to close this account or pay off this other loan in order to make the credit picture look better, it’s their job. If you get someone who’s lazy, there are a lot more out there, and if you find multiple brokers don’t want to work with you, you’ve probably got really bad credit.
The mortgage broker I worked with casually mentioned my credit score, and my credit union automatically puts mine on my account info page every three months. I think you’re overthinking this and expecting it to be a big secret, when my experience is that if someone does pull a credit score, they will tell you if you ask. If your credit score is too low to qualify for a mortgage, the exact score doesn’t really matter either - there’s either negative stuff on your credit report or you don’t have any real credit history, either of which a credit report will tell you.
I didn’t know this was a thing. The bank I work for doesn’t share the actual report with the applicant. They’re not even allowed to see it. They get a disclosure that contains some information about credit scoring, and their loan officer can tell them their credit score and go over any problems verbally. I assumed this was a legal thing, but maybe it depends on the vendor? I’m not clear what a mortgage broker is vs a loan officer. Maybe they’re the same thing and different banks have different styles?
I do know about the free annual credit report. I’ll probably get started by pulling all 3 of ours soon.
Maybe it’s because I’ve had them for so long and I’m ancient of days, but my credit card companies give me my credit score for free in my online account information every month. Mind you, it’s not binding in any way, b/c FREE, but so far it seems as close to accurate as I can tell. I second getting your free CBRs and combing through for adverse, inaccurate information.
Not that you asked, but as a person who works in the mortgage servicing business I’ve got people in my ear every day who regret having bought a house. What are you hoping to change in your current living situation that only home buying will do?
A mortgage broker doesn’t work for a bank. Instead they have the ability to search through and match you up with loan offers from different banks. The loan officer would be the person at the bank who then writes up and closes the loan.
If you know you want to get your mortgage from First Federal Of Yourtown, you can walk in to the local branch and speak with the loan officer and get yourself a loan with that bank. They probably only have so many “products” to sell you in terms of loans and you might not get the cheapest possible loan available to you because First Federal of Yourtown doesn’t have anything but those 3 products.
If you’re not sure which bank would give you the best offer, and want to be considered by many different banks (including ones with no physical locations) and many different loan offerings then you go to a mortgage broker and they match you up with the best fit. They get a commission from the bank that ends up with your loan.
I got my mortgage through a broker who set me up with one of those crazy banks that folded when the bubble burst, and then my mortgage was sold to BoA. I had to re-finance about 5 years in to it and researched local banks and found one that I liked and went right to a loan officer to beg him to accept me at his cool bank.
I would not advise going right to a loan officer for your mortgage. Get a broker who can find you the best deal, and walk you through it all. In fact, I had 5 brokers on the line when I bought my house (it was the boom and I had awesome credit) and had to choose the one I would ultimately go with. That means that dozens of loan offers were matched up with my downpayment and credit score to find the right one for me.
The way the mortgage interest rate deduction works is once a year your mortgage company sends you a statement that has the amount you paid in interest on it. You either give this statement to your preparer or put it on your return yourself. It reduces the amount you have to pay and you either get a bigger refund or you can change your withholding.
Mint.com will also give you your credit score for free, but I believe that it and the credit cards that give you a score give you one of the scores. The other two scores (from the other agencies) can differ significantly. I knew one score when going to get a car, but when the dealer pulled the score, it was nearly 100 points different (in my favor, so I didn’t argue).
There are also “fako” score estimators that are reasonably accurate. You enter generalized information about your credit history and get an estimated score.
Finally, others above are absolutely correct about being able to pull your credit information once a year from the three agencies. However, there’s a trick I like to use to keep a closer eye on my credit report and that is to stagger the reports every four months. The rule is you can pull a score from each agency once a year, so by staggering them out every four months, you can see a report three times a year to monitor things more frequently. A problem with the report at a single agency will still only be seen once every 12 months, but if there’s a problem across the reports, you can get on the issue faster.
Even easier than that. In years past some of our mortgage was from my father-in-law (above market rates, but my wife is an only child so we’re getting it back.) All we needed to do was to specify his name, address and SSN, and we could deduct his part also. And of course he reported it as income.
The median home price in San Mateo County is somewhere over $900K I think, so for many people them giving an example of why a $100K mortgage doesn’t give a lot of tax benefits isn’t useful. It’s not like your mortgage is your only deduction in any case. It’s not a reason to buy, but it doesn’t hurt.