This Tip Could Save You $50,000 on Your Next Mortgage

Photo (cc) by artist in doing nothing

Ready to apply for a home loan? Here’s the one piece of advice that can save you tens of thousands of dollars on your mortgage, plus six more tips to help you get the best mortgage deal you possibly can.

Money Talks News founder Stacy Johnson shares that piece of advice in the video below. Check it out, then read on for more details.

The best advice: Pull your credit history

Before you apply for a mortgage, pull your credit history and get your credit score. Why? Cleaning up your credit history and raising your score can make you eligible for the best interest rates on a mortgage. You’ll want to do this as soon as possible — giving yourself a year to improve your credit.

Borrowers with scores above 720 get the best mortgage rates. They are welcomed with open arms by lenders. If your score is below 720 you can still get a mortgage. But it’s more difficult. And it’ll cost you more. The chart below shows you why. You can use your own numbers at MyFICO’s Loan Savings Calculator.

Lower credit score? Pay more interest
Credit score* APR** Monthly payment Total interest paid
760-850

4.018

$959

$144,848

700-759

4.242

$985

$154,244

680-699

4.421

$1,007

$161,845

660-679

4.636

$1,032

$171.08

640-659

5.07

$1,085

$190,072

620-639

5.62

$1,154

$214,781

*Source: MyFICO; **Annual percentage rate

In this chart, you’d pay $195 a month less with a 760 credit score than with a 639 credit score. That’s a difference of nearly $70,000 over the total life of your mortgage.

Don’t worry that checking your credit report might bring down your credit score. Personal inquiries won’t do that.

Some credit report services charge a fee for a copy of your credit history. But why would you want to pay for it? You can get a free report from each of the three major credit bureaus — Experian, TransUnion and Equifax — at AnnualCreditReport.com, a federally mandated site.

This step-by-step guide tells what to expect when you apply.

What’s next? Here are six tips to ensure you’ll get a better rate on your mortgage:

1. Fix any errors on your credit report

Comb each credit report for errors and negative items. Don’t be surprised if each report shows different items and has unique errors.

Is checking worth it? Decide for yourself. A study released this year by the Federal Trade Commission found that 26 percent of 1,001 randomly selected consumers who reviewed their credit reports reported a “material error” — something that affected their credit scores. For 5 percent of participants, the mistake put them in a greater credit risk tier, which could result in higher interest and insurance rates.

Fix any errors you find. You can complain at the credit bureau’s website or send a letter. There’s detailed information on the dispute process at this page of the FTC website. (See: “Ask Stacy: Can I Repair My Own Credit?“)

If your issue with your credit report is not resolved to your satisfaction, you can file a complaint with the Consumer Financial Protection Bureau.

2. Pull your credit score, too

Don’t stop there. Get your credit score, too.

A one-time look at your credit score costs $19.95 at MyFICO.com. The cost isn’t the only problem. There’s no guarantee the score you’re being sold is calculated the same way as the score that will be sold to your lender, when you eventually apply for a loan. A Consumer Financial Protection Bureau study found that in 19 percent to 24 percent of cases, consumer scores differed from lender scores sufficiently to land the consumer in an entirely different credit category.

An alternative is to use one of the sources of free credit scores like Credit Karma and Credit.com. Your purpose is to get an idea of what your score is and what you need to do to improve it.

3. Pay down debt

One of the factors in your credit score is your “utilization ratio.” That’s the amount you owe on credit cards vs. your available credit. For example, if the credit limit on your Visa is $1,500 and your card balance is $900, you’re using 60 percent of your credit limit.

At any time, it’s wise to use less than 30 percent of your available credit. That means, if your limit is $1,500, keep your balance below $450. Note: We’re not suggesting you carry a balance from month to month. That would require you to pay interest. Rather, charge no more than $450 before you pay it off. (See: “3 Tips to Raise Your Credit Score — Fast.”)

Now, if you’re going to buy a house, improve your score even more by paying off that credit card debt. MyFICO recommends:

Reduce the amount of debt you owe. This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score. The first thing you need to do is stop using your credit cards.

Then come up with a plan to retire that debt.

There’s another reason to reduce what you owe. Your mortgage lender will also be looking at your debt-to-income ratio — how much debt you are carrying compared with your monthly income. This number will affect whether you qualify for a loan and what your interest rate will be.

4. Keep old accounts open

You’ll be tempted, as you clean up your credit, to close old accounts you no longer use. Don’t do it. At least not before applying for a mortgage.

The reason: Part of your credit score is based on the length of your credit history. Even if you have to pay an annual fee to keep your oldest account open, do it until that mortgage is securely in hand.

5. Pay your bills on time

This is a hard one for many people. It can seem crazy, to be sure. You may think, “I was late on one or two payments but what does it really hurt since I paid the late charge and got back on track?” But it does hurt you. Just one late payment can bring down your credit score.

Play by the rules when it comes to paying credit cards and other bills, even if the rules seem silly to you.

6. Avoid new credit

Don’t apply for any new credit — even a simple store credit card — before you apply for a mortgage. The reason: Opening a new account or even giving a company permission to look at your credit history might lower your credit score. MyFICO says:

In general, credit inquiries have a small impact on one’s FICO score. For most people, one additional credit inquiry will take less than five points off their FICO score. … Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk.

Of course you’ll need to apply for credit when you shop for a mortgage, but FICO treats those inquiries about your credit history differently. They will have no or very limited impact on your credit score, as myFICO explains here.

Have you applied for a home loan or refinance recently? What was your experience like? Tell us by posting a comment below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Reasons Not to Move When You Retire
7 Reasons Not to Move When You Retire

Sunny skies and warm breezes sound great. But in reality, you might be better off retiring closer to home.

How to Get Rid of 6 Hard-to-Sell Things
How to Get Rid of 6 Hard-to-Sell Things

Find out where to sell, donate or recycle items — and feel good about it.

15 Things You Should Always Buy at Yard Sales
15 Things You Should Always Buy at Yard Sales

You can save a ton of money — especially if you spot any of these items.

8 Things I Always Buy at Target
8 Things I Always Buy at Target

I grew up shopping at the original Target store and am a lifelong fan. Here are my favorite purchases.

9 Ways to Get Affordable Vet Care
9 Ways to Get Affordable Vet Care

Medical care for your furry friends can be expensive. Here are some tips to get affordable vet care.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Whether you resell it for a big profit or add it to your own wardrobe, this type of clothing is a hidden steal.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

Taking a Multivitamin? Here’s Why You Should Reconsider
Taking a Multivitamin? Here’s Why You Should Reconsider

A new study has bad news for the millions of Americans who spend money on multivitamins.

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

Longer Trips to These Stores May Raise COVID-19 Risk
Longer Trips to These Stores May Raise COVID-19 Risk

An airborne-disease expert recommends leaving this type of store within a half-hour.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

7 Tricks to Cleaning Your Bathroom Faster
7 Tricks to Cleaning Your Bathroom Faster

These tips can get your bathroom sparkling with little time and no elbow grease.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.