What Does Buying a House Do to Your Credit Score?

credit repair

In the months—or even years—leading up to a home purchase, most people spend a lot of time focused on their credit score. Your credit score influences your ability to acquire a mortgage and the interest rate you will pay on that mortgage. After you are settled in your new home, you might notice that your credit score moves around a bit.

In fact, changes to your credit score are likely to start with the credit inquiries that come with applying for mortgages. During the pre-approval process, lenders pull your credit report. This will alert the credit scoring algorithm that you are looking for a new line of credit, which will cause a small drop in your overall score. One way to limit the impact of this effect is to apply with several different banks or lending companies for pre-approval within a two-week period. This way, the algorithm will register an inquiry, but it won’t be as impactful as many inquiries over the course of several months.

While the pre-approval process of applying for a mortgage will decrease your credit a few points, the action of borrowing the money for your mortgage will cost you even more points—especially if this is your first home loan. The major increase in your total debt will cause a drop in your score, typically by a few points. The good news is installment debts like a mortgage will cause less of a score decrease than credit cards or other revolving debts.

Despite some slight decreases to your credit score, there is a silver lining to gaining a mortgage (besides your new home!). If this is your first mortgage, the addition of this kind of debt to your credit profile can be a good thing. 10% of your credit score is determined by your overall credit mix. The more debt variety you have, the better off you’ll be in terms of your credit score. In fact, after the initial dip from the credit inquiries and the adding of a new account, you might find that your credit score rebounds higher than ever before!

You can continue to improve your score quickly by consistently making your mortgage payments on time and in full. Within a few months of regular payments, your credit score will more than likely be higher than it was before you purchased a home.

When you are purchasing a home, especially if it is for the first time, you need to be prepared for your credit score to drop. The good news is this is a temporary decrease that is easy to correct up to and beyond your pre-mortgage credit score. Knowing what to expect once your home is purchased can save you anxiety and allow you to enjoy your home purchase without regrets.

Why Do Real Estate Agents Ask Buyers for Pre-approval?

Many buyers aren’t aware that most real estate agents will request a copy of their pre-approval letter prior to showing them a property. Some are under the impression that they can wait to contact a lender until they find a home they are interested in, assuming they won’t have a problem getting a mortgage. While you might think it unnecessary, getting pre-approved and being able to provide proof to a real estate agent is critical these days for any buyer.  Here are some reasons why a real estate agent will ask you for a letter of pre-approval.

1. Safety

Believe it or not, requesting and receiving a pre-approval letter from a potential buyer is one of the number one realtor safety tips. First of all, if the buyer has taken the time to meet with a lender to discuss a mortgage, it is likely they are serious about buying a home. But also important is that the lender has done some research on the potential buyer. The lender will find out a buyer’s social security number, address, and job history. Having this information makes meeting with potential buyers safer as there is less of a risk if the real estate agent knows identifying information about the buyer.

2. Less financial risk for all

Not all homebuyers who apply for a mortgage will get approved. Pre-approval removes a lot of the uncertainty from the home buying process. It is highly unlikely for a pre-approved buyer to be denied a mortgage once the underwriting process is complete. This allows the buyer and the realtor to confidently spend money and time arranging home inspections, appraisals, and contract details.

3. Staying within budget

The process of getting pre-approved for a mortgage loan can give you a better perspective of how much house you can afford. Lenders will often go over loan programs you are qualified for to explain your options and help you determine which program is the best one for you. Once you have all the numbers you need, you and your real estate agent can work within that budget.

4. Better terms

Getting pre-approved will help you know what kind of an offer to make when you find the house you’re looking for. You will need to know how much cash you are paying, how you are financing, what kind of loan you will obtain, etc. Without a pre-approval letter, buyers have less clarity about making an offer that’s realistic. This will also save you lots of time when it comes down to working through these details. If you already know what you can offer, you will be able to better negotiation for terms favorable to you as the buyer.

5. Sellers’ preference

Besides just being required by real estate agents, some sellers will only allow an agent to show their home to potential buyers who have been pre-approved. Sellers go through a lot of work to make their home ready for the market. They don’t want to waste their time with people who are not serious about purchasing their home.

Getting pre-approved is easy and can give you the confidence you need to start your home buying search.

The New Jersey Homeowner’s Guide to Tax Credits

new jersey homeowner

New Jersey homeowners are burdened with the highest property tax rates in the US. It is no wonder that every year, NJ homeowners look for ways to reduce their tax bill. The good news is there are a lot of ways to find tax relief in New Jersey; and we’ve compiled a list of four strategies for you right here on the Veitengruber Law blog.

Every single NJ homeowner has the right to challenge the taxable value of their home. While you cannot change the state property tax rate, you can change the number your home is valued at and therefore lower the cost of property taxes you pay. An NJ home valued at $250,000 and taxed at 2.4% (the NJ average) would create an annual property tax of $6,000. The homeowners of this property can appeal the taxable value of the home. If the appeals board agrees and lowers the value to $200,000, their new property tax bill would be $4,800. Even a minor adjustment can save NJ homeowners thousands of dollars over the course of their lifetime.

You can determine the taxable value of your home by visiting the NJ Department of the Treasury website and searching your county’s property records. Your individual county might have further information about how they assess property value, schedules, and assessor records. Once you know the taxable value of your home, you can appeal your property tax assessment. This process will be different from county to county. You will need to prove that your home has a lower value than what it was assessed at, either because of size or condition.

While every NJ homeowner is eligible for the appeals process, the following property tax relief programs require the homeowner to meet specific prerequisites.

1. Basic Homestead Rebate or Credit

If you make less than $250,000 a year, you might be entitled to a rebate or credit. This return is based on the first $10,000 in property taxes paid the previous year. The percentage of your property tax you are entitled to receive back in a credit or rebate depends on your annual income. The lower your income, the higher your percentage.

2. Senior Benefits

If you are 65 or older, you could qualify for an additional rebate or credit under the homestead rebate. This would again depend on your annual income. Additional tax benefits are available if you are a senior receiving Social Security, if you have lived in NJ for 10+ years, if you have lived in your current home for 3+ years, if you have been consistent with paying your property taxes, and if you meet specific income limitations.

3. Blind or Disabled People

NJ homeowners who are blind or otherwise disabled can qualify for similar benefits available to seniors. In NJ, you have to prove you are “permanently and totally disabled,” meaning that your disability is not temporary and you can prove a significant, determinable physical or mental impairment.

4. Veterans Benefits

In New Jersey, the home of a totally disabled veteran is exempt from property tax. A veteran who actively served in a time of war is eligible for a tax credit of $250. The spouse of a veteran is also eligible for these benefits. This November, NJ voters may decide on a bill that would extend this $250 credit to all NJ veterans, regardless of whether or not they served in active duty.

If you think you qualify for any of these or other tax breaks in NJ, it can be worthwhile to consider seeking legal help to reduce your NJ property tax. Veitengruber Law can help you work through the sometimes complicated appeals process to lower your annual property tax bill.