There was a time when your credit score was a factor in your ability to secure a home loan, but it wasn't the most important factor. In the real estate heyday, credit scores were often overlooked as long as income -- stated or actual -- was steady.
Credit Scores Increasingly Critical in Home Buying
That was then, this is now. The Associated Press last week reported that applications for home loans dropped another 3.1 percent, slipping the number of home-loan applications to its lowest level since December 1996.
This might seem like just another symptom of a slow real estate market. However, this figure comes at a time when the average rate for a 30-year fixed loan dropped to 4.57 percent -- the lowest rate since 1971, when Freddie Mac first began keeping records of loan rates.
So even though rates are at their lowest, consumers still aren't applying for home loans. That's especially bad news.
Given the availability of credit scores, many consumers are aware of where they stand and are electing to stay put, rather than applying for a home loan. For others, a foreclosure or bankruptcy has hampered the possibility of getting a home loan, so they're not trying until their financial situation is firmed up. Even a loan modification or short sale has a negative impact on your credit score.
In these times, with lending regulations as tight as they are, your credit score is your most valuable possession when it comes to securing a home loan. Make sure you are in tune with your credit score if you are considering a home purchase. And if that home purchase is a long way away, do what you can now to clean up your credit rating. It'll go a long way when it's time to apply for a home loan.