One of the most important qualifications when applying for a mortgage in the Beehive State is having a high credit score. If yours is at least 620, you can be approved for practically all home loans in Utah County available.
Anything less than that number will put you in the “subprime” category, essentially labeling you as a risky borrower. You can still make a mortgage lender say yes even if your credit score is below 620, but expect to pay more interest as a compromise.
To play your cards right, it is imperative to build your credit months or years leading up to your mortgage application. However, what you should not do is just as important as what you should do to attain and maintain good credit standing.
For starters, avoid committing any of these mistakes when applying for a mortgage.
Closing an Old Account
First, leave all of your credit accounts active even if you do not use them. Payment history accounts for the majority of your credit score, followed by credit utilization and average credit age.
Closing your old accounts can negatively affect all of the said factors. When you cancel a credit card, all of your payment history gained through it will be gone once closed. The same logic applies when a mortgage is refinanced, which is more impactful when a home loan of more than 10 years old is in question.
Moreover, reducing your number of your accounts will naturally increase your level of debt. Having a high collective balance can make you look heavily indebted on paper, pressuring you to pay down most of what you owe if your credit score is to recover quickly.
In addition, dumping an old credit account will suffice to decrease the average age of all of your accounts significantly. In other words, you will look like you have less experience in handling your finances.
Opening Several New Credits at Once
Opening new accounts in a short period is just as bad as closing an old account, if not worse. It sets the alarm bells ringing, making a mortgage lender think why you need more debt. When borrowing money to buy perhaps the most expensive item you will purchase in your life, having questionable financial capability can hurt your chances of being approved.
Beefing Up the Down Payment with a Debt
Speaking of acquiring loans ahead of your mortgage application, avoid sourcing down payment funds from any other lender. Taking out any loan will increase your debt-to-income ratio and lower your credit score at the same time. You may even be rejected outright because you are trying to deceitfully swell your coffers.
Shopping Around for More Than One and a Half Months
A mortgage lender will conduct a hard pull, an in-depth credit inquiry to assess your creditworthiness. Hard pulls will shave some points off your credit score unless they are all done within a specific period. Normally, you have a 30- to 45-day window to shop around without inadvertently ruining your credit.
Protect your credit score because it is arguably your most important asset at the negotiating table. If you can no longer improve it before calling a mortgage lender, you should at least keep it the way it is to avoid missing your shot at homeownership.