I’m returning to the U.S. after 5 years, and need to buy a house. How can I get the lowest mortgage rate?

By Aarthi Swaminathan

“How should I handle doing all the other things associated with setting up in a new state?”

Dear Big Move,

I am a longtime U.S. federal employee, and I will be returning to America after five years serving overseas. I hope to buy a house, and currently have nearly no debt and a high credit score.

When I return to the U.S., I will have to buy a car or two, and do all of the things associated with moving to a new place, and I know that oftentimes credit checks are part of the various things that need to happen.

If I get a mortgage, how should I handle doing all the other things associated with setting up in a new state — without hurting my score and chance for the best rate on a mortgage?

Going home

‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.

Dear Going,

Kudos to you for thinking deeply about this, rather than trying to do things on the fly. Your credit score reflects your ability to pay back your debts, so it’s a smart move to prepare all the potential ways you can ensure it’s high, so you pay the lowest rates possible.

Yes, applying for new credit on multiple loans could theoretically hurt your credit score. “Generally, when you apply for credit, a new application will result in a hard inquiry, which can have a temporary, negative impact on your credit score,” Margaret Poe, head of consumer credit education at TransUnion, one of the three big credit bureaus, told MarketWatch.

But that doesn’t mean your score will necessarily fall significantly: “If you’re shopping for one type of loan product, like a car loan, credit-scoring models will ‘bunch’ those multiple applications into a single hard inquiry as long as those applications are made within a short time frame,” she added.

“It depends on the credit-scoring model, but the time frame can be as short as two weeks and as long as a month, so try to shop for loans within two weeks to be safe,” Poe said. “This should limit the negative credit score impact as you start your home buying process.”

Finances under scrutiny

But when it comes to your mortgage, your strategy would depend on what your lender says. “Your finances will be under more scrutiny than with a car,” Poe noted.

You don’t have to stop applying for credit when you’re buying a house, but your broker may suggest it if they think it will hurt your application.

“At best, new credit applications may require you to write a statement describing why you applied for new credit to the loan underwriters,” Poe said.

“At worst, the new credit could signal you’re taking on additional debt, have a credit-score impact, and may result in a change in your loan terms, like a higher interest rate,” she added. “Because of this, putting a pause on new credit applications, in the months prior and during the home buying process, is a smart choice.”

Since you’re likely in the clear with no debt and a high credit score, you are more likely to get approved for loans, and also get good terms, Poe said.

One way you can get a lower rate is to shop around. Particularly with mortgages, which are high-stakes dollar amounts, if you go to multiple lenders and get four different quotes, you could save over $1,200 per year, according to Freddie Mac (FMCC).

Check for identity theft

Critically, make sure your credit score is accurate, and that no fraudster has opened a new line of credit when you were overseas and damaged your score.

“Make sure you recognize all the accounts and that everything is accurate,” Poe said.

If you do spot a new credit-card or medical debt that is most definitely not yours, for instance, act fast. Call the lender first if you’re not sure why you owe them money. If it is indeed wrong, you can dispute it for free with the three credit bureaus.

“Disputes generally take 30 days to resolve,” Poe advised. “Reviewing your credit report well ahead of major purchases ensures there are no surprises — you can shop for your home and car and the accompanying loans with confidence.”

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-Aarthi Swaminathan

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11-20-23 0617ET

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