How can you save thousands of dollars on your mortgage? The answer may surprise you, and it doesn’t involve any tricks or gimmicks. It could take some time and work on your part though. And it could mean putting off buying a house for a couple of years. But the money you save will make it all worthwhile.
The first thing lenders will do when you apply for a mortgage is to check your credit score with all three reporting agencies. The number they’re looking for is 740 or above. Having a lower score doesn’t mean you won’t get the loan. But your interest rate will be higher, and that means higher monthly payments. It will also add up to thousands of dollars in extra interest over the life of your loan.
How to save money on your mortgage?
Just this one step will help you save thousands of dollars on your mortgage. Before you even apply for a loan, check your credit score with the three reporting agencies, Transunion, Equifax, and Experian.
Your bank might offer customers at least one free credit report a year, and so do some credit card companies.
While you pay your bills on time and expect to see a perfect score, the agencies and creditors can all make mistakes. Go over your reports line by line to make sure there are no errors. If not corrected, those mistakes could cost thousands of dollars in extra interest.
Under the Fair Credit Reporting Act, you have the right to dispute any incorrect information.
Five ways to boost your credit score
In many scoring models, payment history and credit-use ratios are most important, so pay close attention to them. They can make up as much as 70 percent of your credit report.
Here are five ways to get your credit score into numbers mortgage lenders like.
- It’s worth repeating. Resolve any disputes with creditors and correct errors on your reports.
- Pay your bills on time. Mortgage lenders want to see that you’re reliable. If you’re behind on any payments, bring them current as quickly as you can.
- Keep your credit utilization ratio low. It’s calculated by combining all your credit card balances and dividing that number by your total credit limit.
- Don’t open new credit accounts unless you really need them. Inquiries work against you on your credit report.
- Leave unused credit accounts open. Closing an account can increase your credit utilization.
Getting your credit score into the mid-700s might take some time. But don’t give up, and don’t lose sight of the thousands of dollars in interest you’ll save when you get that mortgage.
