Home sweet home
In 2017, the National Association of Realtors’ “Home Buyers and Sellers Generational Trends Report” listed millennials as the largest group of homebuyers, indicating that the fastest growing generation is literally on the move.
Are you mortgage-ready?
According to an Experian mortgage survey, 5 percent of millennials identified homeownership as a long-term goal. Though weighing style options like ranch or craftsman and urban versus suburban locations are ways to get there, your home buying landscape should begin with figuring out where your credit stands.
If you’re thinking about buying a home, before you start pounding the pavement for the perfect place, ask yourself these four questions.
1. When was the last time I looked at my credit report?
Your credit is the foundation of your financial house. The stronger it is, the better. Your credit report provides a detailed look at your relationship with lenders and gives a window into how you’ve managed your debts over time. Credit factor insights include your payment history, length of credit history, credit mix—including revolving credit (retail cards) versus installment loans (student loans)—as well as how often you apply for new credit (an indication that you may be financially strained).
Checking on your financial house is recommended annually. If you’re in the market for a home any time soon, reviewing it more often might be needed.
2. What’s a “hard inquiry”?
When you apply for a new loan, such as a mortgage, lenders obtain or “pull” your credit report from one or more of the major credit bureaus to assess your creditworthiness—this is called a “hard inquiry.” Hard inquiries show up on your credit report and can impact your credit score.
3. Do I know my credit score?
Along with checking your credit history, lenders pay attention to your credit score. Think of your credit score like a house number. It identifies where you live in the land of lending. Commonly, scores range from 300 to 850 and are calculated using data reported by the three major credit bureaus: Experian, Equifax, and TransUnion. Known as “score ingredients,” credit scores are based on various elements, such as how much credit you’re using (utilization), if you pay your bills on time (payment history), how much you owe (balances), and how much you’re borrowing (recent credit).
Scoring models, such as VantageScore3.0 weigh the ingredients differently to get to a final number, but overall the higher the score, the more favorable it is to lenders since higher scores generally indicate that you’re a responsible manager of your money.
4. Do I know my credit utilization?
Buying a home will likely decrease the amount of dispensable income you have to devote to debt. Here’s where credit utilization comes into play. Credit utilization, or balance-to-limit ratio, is your total available credit (credit limits) versus how much credit you’ve used (your balances). Keeping your utilization rate below 30 percent is considered good practice. A quick example: If your total available credit is $25,000, your utilization should stay under $7,500. A low utilization rate typically indicates to mortgage lenders that you’re an accountable borrower.
Buying a home is a milestone that requires research, time, and most of all, information about your finances. Before you put the “sold” sign on your decision, you’ll probably have more questions about how credit plays a role in your house-buying plan.
If you want to take a peek at your credit and ensure your data is up-to-date and accurate, Progressive provides 24/7 credit monitoring, alerts, and even identity theft protection for a low price. Like homes, you get to choose which plan fits your particular needs. Plans start at just $9.99 per month. To learn more, click here.