Buying a home can be a long and complicated process, even under the best circumstances. Attending open houses, applying for loans, & participating in negotiations, things can get awfully stressful. Things can be more overwhelming if you are new to all of this. In this blog, we debunk some of the biggest credit myths for first-time homebuyers. We’ll help you move forward without a hint of doubt.

One of the first steps to lower the stress of buying your first home is to check your credit report early in the process. 

While checking your credit, you should report anything that looks suspicious. If something’s wrong, get it corrected immediately by your creditor or lender, or contact the credit bureaus. 

Buying a home is a life-changing decision for an individual or a family starting afresh. Unfortunately, there are several misconceptions about the home-buying process, particularly involving credit and how it impacts first-time home buyers. These misconceptions can deter or prompt you to purchase property despite not being prepared.

Here we debunk the top 6 credit myths for first-time homebuyers to make it easier for you to decide.

Myth 1: Debt is bad for building your credit

Among the most common myths is: you need to pay off all your existing debts to apply for a new mortgage. That’s not true because many successful homebuyers have student loans, car loans, and credit card debt.

While applying for a loan, just make sure that the ratio of debt to income and the payments you owe leave you enough room to pay off a new home loan. In general, not more than one-third of your income should go towards your debts, including your home.

All you need to do is figure out what you can reasonably afford before buying a home. So, there’s no necessity to pay off everything.

Myth 2: Credit score and credit report are practically the same

A credit report is a strictly factual and legally regulated rundown of all the debts you currently owe or have owed in the past. It includes everything, from your student loans to car loans and those debts referred to a collections agency. Your credit report also shows how you’ve honored and paid your debts.

A credit score simplifies this information by running through a credit scoring model and arriving at a singular number that helps lenders evaluate your creditworthiness. Though your credit score is based on your credit report, they are two different things.

Myth 3: You should engage a credit repair company guaranteeing to build your credit 

Several factors can contribute to your low credit score. For instance, if you’ve faced financial problems and struggled to pay down your debts, that negative information will probably reflect on your credit report, bringing down your credit score.

Even correct information on your report could be dragging down your credit score. You can connect with your lender or the credit bureaus to get that information removed for free. 

If you’re facing problems and in immediate need of , there are trusted companies like Cool Credit that can help you to dispute negative items that have wrongfully landed in your credit report. 

You don’t need to engage a dubious credit repair agency that guarantees to get even inaccurate information off of your report and help build your credit fast. Beware of such scams designed to prey on the vulnerable, making false promises and charging hefty fees.

Myth 4: Renting a place is bad for your credit

Whether rented or owned, everyone wants to live in a dignified and quality home. Chances are, you may have heard from someone that renting is a poor financial choice since you can’t build equity and have nothing to show for it when your lease is about to end. If you pay your rent on time every month, it doesn’t hurt your credit.

In fact, some rental housing providers report your payments to credit reporting agencies, which can help you to buy a house in the future. Now, you may want to ask your property manager if they do the same.

Paying your rent every month could strengthen your credit while you save money and wait for the right time, house and location. 

Myth 5: All first-time homebuyers can get a grant 

Although there are many grants and special programs for first-time homebuyers, not all can qualify for them. The eligibility criteria for programs vary by state, loan type, and the location of the house.

Check with your loan officer on what may be available and see if you can get lucky.

Myth 6: It doesn’t matter where your cash deposits come from

Lenders want to know that the money you have is really yours. It can start to look a bit sketchy if you have multiple deposits on your account statements from unverified places of employment.

If you have multiple deposits, make sure you have reasonable explanations for them.

The final words

Hopefully, this information clarifies your doubts associated with credit as a first-time homebuyer. Do your homework, and you’ll be well-prepared to buy your first house.   

If you need professional help to improve your credit score before buying your first house, schedule a consultation with Cool Credit today or visit www.coolcredit.com to learn more.