Buying a home is a significant accomplishment for anyone because the process takes planning, financial prowess and, of course, a good credit score to get the best rates.
For a single woman, becoming a homeowner can be an even greater accomplishment – but it can also be more difficult. It’s easier to qualify for a loan when you have two incomes and two positive credit histories to consider. So for all the single ladies out there, we hear you. It can be a challenge to secure the best mortgage rates when you’re relying on one income and one credit report.
Luckily, buying a home as a single woman can be an incredibly exciting process, especially once you get your financial ducks in a row. Becoming a homeowner might seem daunting at first, but once you understand how to prepare your credit to get the best mortgage, you can go into the process educated and empowered.
Below are some key actions to take to ensure your credit is ready for this next big step in your adult life.
Check Your Credit Report
When you’re considering buying a home, the first step you should take is to pull your credit report. For many single women, this is the scariest part of preparing to buy a home, but really, the fear only lies in the unknown.
Once you have a good idea of where you stand with your credit, such as how many adverse accounts you might have or whether or not your credit report has mistakes on it, you’ll be ready to take the next step.
There are many companies that will try to get you to pay money to access your credit report, but don’t fall for those tricks! Everyone gets one free credit report from each of the three main credit bureaus every year at AnnualCreditReport.com. You can pull all three credit reports at once, or just start with one to check the information on it. Once you get a copy of your report in your hands (or on your computer screen), it’s time to dive in and look for adverse accounts.
Fix Any Adverse Accounts
If you have what’s called “adverse accounts,” you’ll know it, because they are usually on or near the top of your credit report. These are bills you might have in collections or really old accounts that you thought were long gone.
Try not to beat yourself up too much if you see adverse accounts on your report. (I once had a public library report me to collections for not returning a book, and that landed on my adverse account list.)
The point is to get these adverse accounts resolved as soon as possible because they can be damaging to your credit. Lenders like to know that their potential borrowers have a history of paying their bills on time. Having accounts in collections sends the wrong message, and it might make lenders hesitant to give you a mortgage loan.
While you’re checking for adverse accounts, take a close look at the rest of your credit report and make sure there are no mistakes on it. You should even double check that your name and address are correct on your report to ensure it’s 100% accurate.
Pay Down Debt
When you’re buying a house, it’s important to have a low debt-to-income ratio (DTI). Basically, lenders will look at how much income you make every month and compare it to the debt payments you have monthly.
So, if you’re completely debt-free with a paid-off car, no student loan debt and no credit card debt, you should have an excellent DTI. (You are also likely a mythical unicorn.)
However, if you have some lingering debt, it could negatively affect your ability to buy a house. When you’re trying to buy a house, lenders like to see a DTI ratio of 43% or below, even if you have an excellent credit score.
Here’s an example. If you take home $4,500 per month but you pay $1,200 in rent, $400 toward credit card debt, and $500 a month on your car loan, your DTI would be around 46% (the total number of debt payments divided by your monthly income). Since 46% is higher than the recommended 43% DTI, getting a home loan could be challenging in this situation.
This is why it’s important to focus on debt repayment before trying to qualify for a mortgage. If you make a focused effort to bring down your student loan debt, credit card debt or car loan (or, hey, maybe all three!), it will help show lenders that you will be able to handle a mortgage payment with room to spare.
Avoid New Loans
Now that you understand how important your debt-to-income ratio is, don’t take out new loans when you’re shopping for a mortgage! When you take out a car loan or a personal loan or get a new credit card, it’s possible that those lenders will do a hard pull on your credit, which can negatively affect your credit score. Getting a new line of credit can also add to your monthly payments, increasing your DTI.
So, when you’re ready to shop around for the best mortgage rates, be sure you’re focusing on homeownership. Try not to let your desire for a new car or credit card distract you until you close on your home.
Pay Everything on Time – Every Time
Your payment history makes up 35% of your credit score. This means that every time you’re more than 30 days late on a payment, it has a strong impact on your score. No one is perfect, so if you have a late payment that’s several years old, don’t panic. One late payment shouldn’t affect your ability to get a mortgage, but don’t be surprised if your potential lender asks about it.
What you really want to avoid is making late payments now. You can explain away mistakes that happened long ago, but if you have several late payments from the past few months, mortgage lenders may pause. After all, they are entrusting you to pay back your mortgage on time every month. Late payments on a credit report will definitely raise some red flags. If this is the case with you, take extra care to concentrate on paying your bills on time so you can prove to lenders that you’re a reliable borrower.
Ultimately, getting a loan as a single woman doesn’t have to be intimidating. As long as you have a steady income, a good credit score and a history of paying your bills on time, you should be well on your way to qualifying for a mortgage and having a home of your own.
What questions do you have as you prepare for homeownership? Let us know in the comments below!
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