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Raise your credit rating before hitting the real estate market

First-time homebuyers have a lot to contend with. Buying property is one of the biggest investments most people make in their lifetimes, and it comes with a broad range of responsibilities and obligations that can be difficult to learn, especially since most people have to learn about them as they go. This is why it's important to have the right resources, like a qualified realtor, legal advice about the market and responsibilities you are about to take on, and the kind of mortgage application that will get you the best rates.

That last part is more important than you think. While most people with credit scores above 625 are able to access mortgages, that doesn't mean it's a great idea to go out on the market with a credit score that's any lower than it has to be. The industry is open about the fact that higher credit scores translate to lower mortgage rates, and recently, research has shown just how big the difference gets to be.

Credit ratings and mortgage rates

The Washington Post ran an article that featured research conducted by the mortgage information website HSH.com. In it, they broke down the results of research into the range of mortgage rates seen at different credit levels. Here is what they found:

  • Under 625: There is no window offered here, and the advice is to raise your rate because it will be difficult to find a loan.
  • 625-650: The median rate was 3.88 percent, the most expensive 10 percent of mortgages were above 4.38 percent.
  • 650-675: Median rates are at 3.75 percent with this group, and the most expensive 10 percent were above 4.25 percent.
  • 700-725: The median in this group was still 3.75 percent, but the most expensive section dropped to 4.12 percent and up.
  • 725-750: Median rates fell to 3.62, and the most expensive top end was at or above 4 percent.
  • 750 or higher: The median rate stays the same for this group, but at this point, the most expensive mortgages start at 3.88 percent, the same as the median rate for the group in the 650-675 range

Everything adds up

If you can boost your credit score enough to go up one or two categories on the list above, the resulting savings could be in the thousands. At the very least, you'll protect yourself from the highest rates you could draw, and that will increase your overall purchasing power and make your investment more worthwhile. That's just one part of buying a new house, though. To make sure you have all your bases covered, work with a real estate attorney who can advise you.

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