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The Power of a Strong Credit Score: Tips for Boosting Your Mortgage Eligibility

In Chicagoland’s competitive housing market, having a strong credit score can significantly boost your ability to secure a mortgage loan and achieve the dream of homeownership

Investing in real estate has long been considered one of the most dependable ways to create generational wealth. Appreciation of property values and smart use of home equity can help you build a lasting legacy for your loved ones. 

However, with interest rates hovering around 7% and inflation continuing to take a toll on savings, many hopeful buyers feel that getting a mortgage loan is still out of their reach.

The truth is that home loans are becoming more accessible to many Americans, and boosting your credit score can help you receive a lower interest rate and qualify for a wider range of mortgage products — let’s take a closer look.

Building a Strong Foundation

For many millennials, Gen Xers, and Gen Zers, owning a home is an important milestone and a symbol of financial stability. However, the path to homeownership can be challenging, especially if your payment history isn’t the greatest or you’ve been struggling with student loans.

A credit score is a numerical representation of creditworthiness. It’s calculated based on your past behavior in handling debt, including making on-time payments, credit utilization ratio (the amount you’re using compared to your limit), and the length of your credit record.

Your credit score is a three-digit number that ranges from 300 to 850, with higher scores indicating a lower risk to lenders. 

There are many ways to improve your credit, but generally, it takes time, discipline, and keeping a realistic view of your financial situation. This effort can pay off impressively when it comes to securing a mortgage.

Here are some proactive steps you can take to get started today:

  • Pay your bills on time: Consistently paying your bills on time is one of the most effective ways to build and maintain a positive payment history. Set up automatic payments or reminders to ensure you never miss a deadline, including credit card bills, student loans, and utility accounts.
  • Monitor your credit reports: You can check your score for free with the big three major credit bureaus, Experian, Equifax, or TransUnion. Dispute any discrepancies promptly to ensure your credit report accurately reflects your financial responsibility. You’re entitled to a free credit report at least once every 12 months. AnnualCreditReport.com is the site authorized by Federal Law to make this available to you. 
  • Maintain a healthy mix of credit types: Lenders prefer to see a diverse credit mix, including revolving credit (like credit cards) and installment loans (such as auto loans and student loans). However, avoid opening new accounts unnecessarily, as hard inquiries can temporarily lower your score.

More Mortgage Maneuvers

Younger borrowers face unique challenges in today’s real estate market due to skyrocketing home prices, rising costs of living, and wage stagnation. But don’t hang up your homeownership aspirations just yet.

Before starting your home search, it’s essential to understand how much you can realistically afford. Lenders typically recommend that your monthly housing expenses (including mortgage payments, property taxes, and insurance) should not exceed 28-35% of your gross monthly income. 

Additionally, your total monthly debt payments (including housing expenses, credit card payments, and other loans) should not surpass 36-47% of your gross monthly income.

If this seems like an unreachable goal, don’t despair. You may want to consider meeting with a housing counselor, a financial advisor, or an experienced mortgage lender to fully understand your options.

There are also a variety of down payment assistance options and first-time home buyer grants available, so doing your research is crucial.

Government-backed mortgages like those through the FHA, VA, and USDA are specifically designed to make buying a home more accessible for more Americans. These programs offer more flexibility and less stringent requirements than conventional products.

You may also want to explore exciting new offerings like portfolio loans. These allow lenders to offer more customized terms for entrepreneurs, non-traditional properties, and other borrowers not eligible for the conventional route.

Smart money management and forward-thinking financial decisions will help you get where you want to go. Leverage technology to improve your situation with an array of budgeting and planning apps

The Home Stretch

When you’re ready, talk to your lender about getting a mortgage preapproval. This is a strong indicator of your purchasing power and shows sellers you mean business. Having a preapproval in hand can make all the difference when it comes to securing your dream home.

Once you’ve started the buying process, it’s critical that you avoid moves like changing employment, making large purchases like cars or furniture, or going through major life transitions like marriage or divorce until closing is complete, or you could derail your sale. 

The journey to homeownership is an exciting one, and a strong credit score is your key to unlocking a world of possibilities. 
Asking the right questions will get you closer to creating a safe and secure home for you and your loved ones. I’ve got the answers you need — reach out to me today!

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