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Spring into action to buy a house this summer

Summer is the busiest time of year for home sales. If you want to buy a house this summer, spring is a good time to get the ball rolling.

No, it's not necessary to start looking at houses three or four months before you plan to move. It's the financial stuff that you tackle three to four months before moving day: finding out your credit score and fixing any errors on your credit report.

Rudy Cavazos, spokesman for Money Management International, which runs debt-counseling services in Arizona, New Mexico, Illinois and Texas, says he advises people to wait before finding a real estate agent and a lender. Instead, he urges them to spend $12.95 to get their credit scores and a copy of their credit reports.

"You want to gain yourself some leverage," he says. "You gain that leverage by finding out what your credit score is. Once you do that, you know where you stand, so if you have a low FICO score, by starting now, early, you have time to elevate it so that you have stronger bargaining power with your mortgage lender."

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The credit score is a distillation of your credit history into a three-digit number between about 300 and 850, the higher the better. What you want at the absolute minimum is a credit score of 620 to qualify for a conventional mortgage. A score above 720 is most desirable.

Credit scores are calculated using a secret mathematical formula devised by Fair, Isaac & Co. -- hence the name "FICO." Another common name is "Beacon score."

Errors appear regularly on credit reports, and they can drop your score lower than you deserve. If that happens, you might be offered loans on worse rates and terms than you otherwise would qualify. Most mistakes on credit reports result from clerical or computer errors by billers.

Most errors can be disputed with a letter to the credit bureau that describes the mistake and requests an investigation. Expect the process to take at least a month. Cavazos tells people to set aside 45 days to repair credit-reporting errors.

If you're satisfied with your credit score and the accuracy of your credit report, the next step takes place about 60 days before you plan to move. That's when you gather financial documents that a lender will need: pay stubs, statements from banks, brokerages and retirement accounts; income tax returns; records of debts such as auto loans, mortgages, student loans and credit cards.

Then it's time to find a broker or lender, who will evaluate credit and income information to estimate how much you can afford to borrow. Of course, you've already estimated that yourself, right? No? Then use this mortgage calculator. If there are any obvious problems with your financial documents, the broker or lender will tell you during this pre-qualification process.

If you haven't started looking at houses two months before you plan to move, it's time to start. The most efficient method is to find a trustworthy real estate agent who understands what you're looking for. If you start searching for a house 60 days before your target move-in date, you have a little over three weeks to look and a half-week to haggle.

While you're searching, it's time to go beyond pre-qualification and get pre-approved for a mortgage so that your offer for a house is taken seriously. When you're pre-approved, it means that a lender has agreed to lend up to a certain amount at specified terms and conditions.

"With a pre-approval, you're going to have more leverage when you make an offer," says Steve O'Connor, vice president for industry relations and policy development for the Mortgage Bankers Association. "You can say, 'I've got a loan approved already that's sufficient to purchase this home,' and that makes you more attractive to a potential seller."

After you agree on price and terms for your house, it usually takes a month or a little longer to accomplish everything else: an inspection, an appraisal, final loan approval, title work and closing. Not to mention packing up and moving.

By the time you've moved into your new home, you'll look back fondly at that less-hectic time a mere three or four months before, when you were reviewing your credit report and your days were less stressful.

-- Posted: March 14, 2002
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See Also
Necessary paperwork for a mortgage
How mortgages work
Your mortgage broker checklist
Mortgage basics
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