Check your credit before you apply

If you’re waiting until you apply for a mortgage to check your credit, you’re waiting too long.

That’s because mortgage rates — and mortgage qualification — depend on your credit. And the stakes are pretty high.

• Start checking your credit score at least a year before you plan to buy a house. Low credit could mean high rates or not qualifying
• Even if your credit is strong, working to improve it could get you a better mortgage rate and lower payments

If you check your credit at the time you apply and find out it’s lower than you thought, you’ll likely end up with a higher rate and more expensive monthly payment than you were hoping for.

If you find out your credit score is really low — think, below 580 — you might not qualify for a mortgage at all. You’ll likely be out of the home buying game for another year or more as you work to boost your score back up.

A small change in credit score can make a big difference

There’s a flip side to this story, too. A higher credit score usually means a lower mortgage rate. So if you check your score and learn that it’s strong, you might still want to work on improving it before you buy.

Mortgage rates are based on credit tiers. If raising your score a few points would put you in a better tier (fair to good, good to excellent), it’s worth waiting to improve your credit before applying.

Consider this: Mortgage rates are based on credit “tiers.” A higher credit tier means a cheaper mortgage. And if your credit score is currently 719, raising it just one point could put you in a higher tier and earn you a lower rate.

Check your credit early and be thorough 

Ideally, you should start checking your credit early. It can easily take 12 months or more to reverse serious credit issues — so the sooner you get started, the better.

Apply for a mortgage with multiple lenders

It’s a huge mistake to accept the first mortgage quote you get.

Many first-time home buyers don’t know it, but mortgage rates aren’t set in stone. Lenders actually have a lot of flexibility with the rate and fees they offer you.

That means a lender you’re looking at might be able to offer a lower rate than the one they’re showing you.

Shop around for your best rate and closing costs 

In order to get those lower rates, you have to shop around and get a few different quotes. If you get a lower rate quote from one lender, you can use it as a bargaining chip to talk other lenders down.

Shopping around for mortgage rates also lets you know if you’re getting a good deal.

For example, a 4% rate and $3,000 in fees might sound all right if it’s the first quote you’ve gotten. But another lender might be able to offer you 3.75% and $2,500 in fees.

That makes the first offer a lot less appealing — but you won’t know it until you look around.

Get pre-approved before you make an offer on a home 

This is arguably the biggest mistake you can make when you’re trying to buy a house: Applying for a mortgage too late and not getting pre-approved before you begin searching for your next home.

The number one rule: Know how much you can buy and get it in writing before you get your heart set on a price range or a specific home.

How late is too late to start the pre-approval process? If you’re already seriously looking at homes, you’ve waited too long.

Know what you can afford

You really don’t know what you can afford until you’ve been officially pre-approved by a mortgage lender. They’ll look at your full financial portfolio — income, credit, debts, assets — and determine your exact home buying budget.

Even if you think you know what you can afford, you might be surprised.

As we described above, debts can take down your home buying power by a startling amount. And you can’t be sure how things like credit will affect your budget until a lender tells you.

By not getting pre-approved for a mortgage before you start shopping, you run the risk of falling in love with a house only to find out you can’t afford it.

A pre-approval letter gives you leverage 

Worse, you might find yourself negotiating for your perfect home and being ignored. Imagine you’re a home seller (or a seller’s real estate agent) and you get an unsupported offer from a total stranger. 

For all you know, the prospective buyer stands zero chance of getting the financing they need. 

And if you get another offer from someone who has a pre-approval letter in her purse, you’re bound to take that one more seriously. Heck, you might even accept a lower price from the one you know can proceed. 

So getting pre-approved gives you credibility and leverage in negotiations. And those are two things every homebuyer needs.

Late rent payments can make it harder to qualify for a mortgage

Being late on rent is a bigger deal than you might think — and not just because it’ll land you with a late fee from your landlord.

Late rent payments can actually bar you from getting a mortgage.

Your rent history is the biggest indicator of whether you’ll make mortgage payments on time. Late or missed rent checks can prevent you from buying a home.

It makes sense when you think about it. Rent is a large sum of money you pay each month for housing. So is a mortgage.

If you have a spotty history with rent checks, why should a lender believe you’ll make your mortgage payments on time?

When you apply for a mortgage, the lender will check your rent history over the past year or two.

If you’ve been late on payments, or worse, missed them, there’s a chance you’ll be written off as a risky investment.

Rent is especially important for people without an extensive credit history.

If you haven’t been responsible for things like credit card, loan or car payments, rent will be the No. 1 indicator of your credit-worthiness.

Credit purchases can limit your home buying budget 

You may have heard that you shouldn’t finance an expensive item while applying for a mortgage.

But most people don’t know that it’s a mistake to buy something with big payments even years before you apply.