By J. Mansisidor
As a third or fourth year medical student, the last thing on your mind may be getting ready to buy a home. But those two years will go faster than you think and before you know it, MATCH DAY will be here. As you start looking at the cost of renting (which is constantly on the rise) in your prospective city for the next three to six years or more, buying a home may no longer seem so implausible. It is never too early to start working on putting yourself in a position to qualify for a mortgage.
The journey to home ownership starts with credit.
Typically, acceptable credit scores to purchase a home (especially for 0% down financing) will range from 700-740.
The most common way of building your credit score is to avoid late payments of 30 days or more and stay below 30% of the max credit card limit. Staying under 10% of the credit limit will provide the best credit ratings. Setting up auto payments is an easy way to keep your payments on track, especially with a busy schedule.
I’ve seen people close credit cards (typically ones they never use) in preparation for buying a home, thinking that it will look better to lenders and free up available credit. In fact, it is not necessarily beneficial to close an account, especially one you have had open for a while. All that positive credit history built over time is lost, which affects your credit rating negatively.
Some banks require a certain number of trade lines, also known as open credit accounts. This is a question you should ask prior to pulling your credit report. Most banks consider three trade lines to be an ideal number. If you do not have three trade lines, ask the lender if they make exceptions to this guideline. Some banks may consider non-traditional credit, like a bill with a 12-month payment history in your name with proof that you have been making those payments.
Keep in mind that being an Authorized User is not the same as being a primary account holder, so not all banks consider this in determining credit favorability.
When applying for mortgage credit, you need to confirm whether your student loans are truly in deferment because that will certainly impact your credit profile. It has happened where students think they put their student loans in deferment, but the student or the financial aid office did not complete all required information. If you receive letters from a student loan provider, it is important to review them thoroughly.
Being credit aware now will help you make smart choices. That forethought will ensure you have more options down the road.
J. Mansisidor is a Specialty Loan Officer and Medical Loan Specialist with Truist Bank.
