Saying Goodbye to Your Lease and Hello to Your New Home: Where to Start

Thinking of putting your days of renting behind you? Between credit scores, bank accounts, mortgage rates and existing loans, when is the right time to switch from renting to buying? Take these factors into account before saying goodbye to your lease and rest assured your venture into the land of mortgages will be successful.

Understanding your Credit Score

There’s a magic number in the world of mortgages, and it’s called the credit score. If you’re thinking of purchasing, this number is no longer an invisible variable, it’s now a transparent factor in securing the best rate available to you. A mortgage, or the loan acquired to finance the purchase of a house, is likely one of the largest debts that you’ll ever willingly take on and your credit score is a record of your past debts and spending habits used by your financial institution to help determine whether you are financially stable and reliable enough to pay back your loan in monthly installments, typically within 15 to 30 year agreements.

An excellent credit score of 750 points or above will ensure you receive the lowest mortgage rates on the market, costing you less in interest paid over the course of your mortgage, while a credit score ranging between 640-660 leans towards the lower end of the lending spectrum; anything below these scores and your ability to obtain a mortgage may be in jeopardy.

To improve your chances for securing the lowest mortgage rate possible, take a look at your credit score online to verify that you aren’t being penalized for past settled debts and transgressions. Refrain from opening any new credit cards at least a year before applying for financing, as too many open lines of credit will add up to a lower credit score, and may scare off potential lenders.

Consider the “Don’ts”
A few Don’ts to consider: don’t start closing all of your unused credit cards before applying for financing. Closing unused credit cards or transferring credit debt to a new account will lower your credit score and affect your ability to secure the best mortgage rate available. Tempted to purchase that new car you’ve been coveting? Hold off; adding a new loan to the mix or spending your hard earned savings could stave off your chances for acquiring home financing. Skipping or defaulting on any current loans and credit payments will take your credit score down notches as well. Prepare for obtaining a new mortgage by ensuring on-time payments to your open accounts.

Timing is everything
The right time to purchase a new home is when you can comfortably afford a mortgage payment, and not a moment sooner. A rule of thumb to ensure financial stability; home expenses should never exceed more than 28 percent of your monthly income. Committing to a mortgage with constraints that are too tight on your monthly budgets is a recipe for disaster. Until you can afford a mortgage that easily operates within your budget, you are better off renting.

A desirable loan candidate has at a minimum of 3-5 months worth of mortgage payments set aside in a savings account. Make sure you’re depositing a sizable portion of each monthly paycheck to pad your savings account if you plan on purchasing in the near future.

Consider the down payment and loan fees. Your mortgage will end up costing you more than just your monthly payments; you’ll be responsible for down payments and loan fees upfront. Start saving now, you’ll need anywhere from 3 to 20% of the home’s price for your down payment, and roughly $2,000- $4,000 to settle closing costs.

Pre-approval
There’s such a thing as a ‘pre-approval process’ that amounts to extra time spent garnering mortgage financing before you even set out searching for your perfect home, and shopping for the best loan available to you is an integral part of the financing process. Call around to financial institutions in your area for a free, over the phone estimate of the loan you would likely qualify for. Be prepared to offer information regarding your income, assets, and debts. Pre-qualification can help you better understand the price range you’ll be working within when you do set out to check out your potential palace.

Pre-approval requires an appointment with a lending institution and delves into your credit history and current circumstances to potentially offer you a pre-approved loan in good faith, laying out the likely terms of your mortgage agreement in the event that you decide on a home to purchase and opt for a financing agreement with said financial institution. Going through the pre-approval process with several different lending establishments allows you to compare terms among different financial institutions to garner the lowest possible rate on your mortgage.


Dreaming of becoming a new home owner? St. Cloud Federal Credit Union can get you there. We can offer you a stress-free mortgage experience complete with the one on one attention you’re looking for to assist you in better understanding your options and the home buying process. We aim to provide you with the best loan available to you, to not only meet your needs, but exceed your financing expectations. From pre-approval options to indepth information to assist you in your first home buying experience, our mortgage loan department is ready to accompany you on your home-buying journey. Give us a call or stop in to our St. Cloud loan department today.

* Educational topics are meant to provide you general information. Examples are for illustration purposes only and are not specific to St. Cloud Federal Credit Union products.

Help Your Credit Score Soar!

We recently posted a blog breaking down the basics of what a Credit Score is for better understanding.  As promised, below is a list we've compiled of ways you can boost your Credit Score and make it soar!

-Pay Your Bills on Time:
Late (aka: ‘delinquent’) payments have a huge negative impact on your overall score.  The more you’re on time with bills, the better your score will get.

-Don’t Open More Cards than Necessary:
Multiple new accounts can start to lower your account ‘age’ and in turn, drop your score as well.

-Be a Responsible Manager:
Having Credit Cards is good, as long as you are good about keeping track of them (limits, payments, etc.).  Having no cards at all can be a higher risk, so be on top of the ones you do have.

-Maintain a Low Balance:
A higher ‘outstanding debt’ can really affect your overall score – it can be lowered over 50 points just by maxing out a card!

-Keep an Eye on your Credit Report:
From time to time, outdated or inaccurate details can show up on your Credit Report – this too can really damage your Credit Score.  Check your Report often, and if/when you see an error file a claim to get it fixed.

-Be Active:
Just having a credit card isn't going to increase your Credit Score – you have to use the card to really establish a strong credit.  Even if it’s a card you only use on groceries, get it – and use it wisely!

Last, but certainly not least --
-Be Persistent:
Improving your Credit Score can take years of diligent spending and dedication to watching your finances – it may not be easy, but we can promise that it will be worth it.  Commit yourself to practicing Financial Fitness today!

Good Credit can be essential to living without financial stress.  If you’d like to talk with one of us, or get help pulling your free Credit Report, call or stop in – we’re here for you!  Our Member’s financial being is always our priority.  We are People Helping People.

Like - Follow - Pin - Connect - Link - Watch - Read

Credit Scores? Just Smile and Nod…

We often hear about the importance of a strong, well-kept Credit Score; but do you really understand what a Credit Score is?  Although the details are far from simple, we did our best to break it down and cover some main points to help you become more informed, so next time you’re asked about a Credit Score, you don’t have to just smile and nod…

What Exactly is It?
A Credit Score is a 3 digit number generated by mathematical algorithms taken from various pieces of information within your Credit Report.  Basically, this calculated number aims to predict your risk as an individual and analyze the chances of you becoming a “delinquent” on different credit obligations. 

Who Uses It?
Your Credit Score is often used by financial institutions and credit card companies to evaluate your eligibility for lending money.  Your score can help determine if you qualify for a loan, what your limits are, and the interest rate.  However, Credit Scores are not only for financial institutions.  A variety of organizations (cell phone companies, insurance companies, landlords, etc.) can use your Credit Score information for the same techniques.  Your Credit Score can be the difference between a low or high interest rate, qualification for an apartment rental, and much more.

Are they All the Same?
While there are all kinds of existing Credit Score models, the most common is the FICO.  According to myFICO.com, “90 percent of all financial institutions in the U.S. use FICO scores” when making decisions.  Your FICO score can be anywhere in the 300 – 850 range; a higher FICO score number indicates lower risk.  There are three different Credit Bureaus that gather your score: Experian, Equifax, and TransUnion – this means each consumer has three FICO scores.  Your FICO score is made up from your Credit Report’s data that is sorted into 5 main categories (see below).  Within this model, some factors are weighed more heavily – like debt and payment history.

What Makes up the Score?
On the right, you’ll see a model of what goes into your Credit Score.  Your Payment History (35%) includes account payment information, including delinquencies and public records.  Your Amounts Owed (30%) is how much you owe on each of your accounts.  The Length of Credit History (15%) is the amount of time between activity on accounts and how long they've been open.  Types of Credit Used (10%) is the variety of accounts you have (installment and revolving).  Lastly, New Credit (10%) includes credit inquiries you've made, recently opened accounts, and your pursuing of new credit.  It is important to note that personal and demographic information (age, marital status, race, income, address, employment, etc.) do not affect your score.

With a better understanding of your Credit Score you can practice better control of your score.  Stay tuned for future blogs about how to build good scores, what can hurt your score, and becoming financially fit. If you have any questions, call or stop by today! We are People Helping People.

Like - Follow - Pin - Connect - Link - Watch - Read