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The Top Hidden Costs When Buying a Home
Jennifer Hernandez • February 6, 2023
First-time homebuyers may not be aware of all the hidden costs during the home-buying process. Learn what to expect in this guide.
Whether a first time or seasoned homebuyer, you want to make sure that you do not run into unexpected hidden costs when purchasing a home.
Purchasing a home is considered by many to be one of the
best investments that a person can make. Being informed will be sure that you have all the information you need to take that next step.
Closing Costs During Home Buying Process
What are closing costs? Closing costs are fees charged by entities that are involved in closing on your home purchase. Even if a person pays cash for a home, there are closing costs. The most common closing costs are for the lender, if applicable, title company, recordings, attorneys, appraisals, surveys, local and or state taxes as applicable just to name a few. Here is a link to the CFPB website, better known as the Consumer Financial Protection Bureau, explaining customary closing cost fees.
Most people want to determine closing cost fees in term of a percentage. This can be challenging, since it depends on what your loan amount is to determine an exact percentage. But for the sake of the article, we could say anywhere from 2% to 5% of your loan amount is the total of all fees to be paid at closing.
Whether paying cash for a home, or obtaining financing through a mortgage, you should consider negotiating with the seller to give a credit toward your closing costs. This can be done with your real estate agent at the time you make the offer to purchase the home.
Property Tax
Property taxes are an important source of income for local municipalities and school districts. The property tax rate will vary for every state, county, city and even neighborhood. Property tax can be a cumulation of tax for the county, city, emergency services, school districts, water districts , etc. In general, the more your home is valued, the more you can expect to pay in property taxes.
Be cautious relying on online calculators to calculate tax. In many cases, these online calculators are wrong, as they pull in as is data floating around online. The actual property tax will catch up to current values when you purchase it, versus what the seller may actually be paying now. Every state and county has a different way to calculate property tax, so relying on your local realtors and local lenders is a great way to continue to educate yourself on how to calculate in the areas you are searching.
The main hidden fee to know about here is that property taxes tend to rise over time because home values do as well. As your town or city's budget grows, so does the need for revenue through property tax. This can be a good thing for your home investment, if you plan accordingly. However, as the values and property tax will rise, so will your future mortgage payment.
The payment is typically folded into the mortgage bill that you can expect to receive every month by what is called an escrow account. If you put more than 20% down at closing, or paid cash, you might have chosen not to have the lender handle payment of your property taxes through escrow.
The mortgage lender will evaluate your mortgage payment annually to determine if too little or too much is being collected, and adjust your payment accordingly.
Every county across the nation likely has a process in which to protest property tax values yearly. When you purchase, be sure to ask your realtor, lender or title company what this process is, so that you know how to act accordingly each year as the property taxes are reevaluated.
Homeowners Insurance
When carrying a mortgage loan, homeowners insurance is mandatory. Basic insurance is against fire perils, but in some areas of the country can also mandate you carry flood insurance, tornado, earthquake and/or windstorm.
There is also a special policy for rental properties called rent loss insurance. These costs can add up, and will be determined on the house you buy, in which area. Be sure to ask the realtor or seller of the known insurances they are required to carry, this way you are not surprised at closing when it is being required by the lender.
Just as with property tax in the section above, homeowners and other insurances can be severely miscalculated online. It is best to talk to a local lender as quickly as possible to find out what that local area usually requires in coverage.
Mortgage Insurance
PMI, better known as Private Mortgage Insurance, is generally required on Conventional loans that have less than a 20% down payment. Here is a video on how this PMI is calculated. It is later able to be removed, once the home owner meets certain qualifications.
If you are obtaining an FHA loan, MIP is required, which stands for Mortgage Insurance Premium and is calculated differently than a Conventional loan. On an FHA loan, regardless of down payment at the time of purchase, this insurance is required. This distinction is where some confusion often lies.
It is believed that all loans that reach the 20% equity point, meaning that the loan to value is less than 80%, will remove the MIP on and FHA loan later down the line as you either pay down the mortgage, or the home increases in value. This is actually not the case. The MIP, or Mortgage Insurance Premiums, on FHA loans is payable for the life of the loan, unless you put down 10% at purchase. If this is the case, you may request removal after 11 years of payments.
Earnest Money
When you put an offer on a home with your realtor (and the seller accepts it), you will likely need to follow that up by an initial deposit with is better known as earnest money. As the name implies, earnest money is a sign of good faith, or earnest, on your part that you intend to follow through with the terms of the contract.
There are no laws detailing what percentage must be put down, but 1% is typical. You can even offer more than 1% as and additional sign of commitment, as may be needed during a multiple offer situation.
Earnest money is typically given within one to three days of the contract being fully executed, or signed , be both buyer and seller. This money is not an additional cost to buying a home, but better yet a deposit. As long as you fulfill the agreed terms of the contract, it will be applied to your monies due on closing day for down payment and closing costs.
Moving Costs and Fees
So, you closed on your home. Congrats, you are a new homeowner!
Now you'll have to consider moving expenses. Does your current living situation, especially if you are renting, have any exit fees? If you are a current owner moving out of state, does your state have an exit tax?
What about the cost of professional movers or temporary storage that might be needed to move? More fees at the time of moving are deposits required to set up utilities. Gas, water , electricity, cable, and internet are the most common.
To set up these accounts, you will need to call possibly a week or two prior to your move in date. Be prepared to offer up a deposit, that could be higher if you do not have a credit score to indicate your ability to pay in a timely manner.
Neighborhood Fees - Home Owners Associations
Some areas use zoning to control development in residential areas, while others require deed restricted communities, better known as Home Owners Associations.
These Associations in most cases require not only fees at the time of closing for transfer, and dues for the remainder of the year, but they have ongoing annual fees. These annual amounts can increase over time, according to how they are being governed by a board of directors, usually made of a volunteer group of your neighbors.
Annual dues to these neighborhoods are typically mandatory, but could be at will. At closing you should be provided the by laws and covenants of the community. Be sure to review them with your realtor, so that you know what your future responsibilities will be.
Ongoing Home Maintenance Costs
Owning a home is an amazing investment over time and definitely has many positive attributes. On going maintenance of your beautiful home will be required to protect your investment, and market value for a future sale.
This means that you should expect to upkeep things like exterior siding, lawn care, driveway and patios. If you have a sprinkler system, exterior gutters, pool maintenance, and garage doors. Inside your home are other maintenance items such as plumbing, light fixtures, air conditioners, heaters, smoke detectors, alarm systems, any smart home electric equipment. Although many of the items like painting, roofing, air conditioners, water heaters and underground plumbing only happen every 7-15 years, when they do happen, they are big ticket items.
The lists of common home fixes can be hard to estimate.
Here is a webinar I did with a seasoned property investor that could help you calculate some of these fixes. The cost will definitely come down to the home size, and also the amount of additional features in the home. Asking a seller for these approximate costs of upkeep will keep you from pitfalls later on.
Learn More Tips About Mortgage Loans for First-Time Homebuyers
First-time homebuyers have a lot to navigate as they prepare documents needed for pre-approval in Texas by working with a loan officer. I personally have helped thousands of families obtain mortgages since 1995. I would be honored to consult you further on your home buying journey.
At Loan with Jen, our mission is to help you own the home of your dreams. Contact Jen directly today!
Buying a home is one of the biggest financial and emotional decisions you'll ever make. But how do you really know if you're ready? In this article, we’re breaking down five clear signs that you might be ready to buy a house—and one red flag that means you may want to wait. Whether you’re a first-time buyer or just testing the waters, this guide will help you move forward with clarity and confidence. Sign #1: You’re Financially Stable The first green light? Consistent income and job stability. If you’ve had a steady paycheck for at least two years (especially in the same industry), that’s a strong start. But it goes deeper than income: You should also have: An emergency fund covering at least 3–6 months of expenses Savings for a down payment (typically 3%–20% of the home price) Money for closing costs and moving expenses Pro Tip: Many buyers underestimate how much they’ll need after the down payment. Check out this mortgage planning article to avoid that mistake. Texas-Specific Tip: Texas has no state income tax—but property taxes are higher than the national average. Be sure to budget accordingly. You can estimate local taxes via the Texas Comptroller’s Property Tax site. https://comptroller.texas.gov/taxes/property-tax/rates/index.php Sign #2: You’ve Got Manageable Debt & Decent Credit Your debt-to-income ratio (DTI) and credit score directly impact your ability to qualify for a mortgage—and the rate you’ll get. A credit score above 620 is usually the minimum for most loan types The higher your score, the lower your interest rate—potentially saving you thousands over time If you're carrying high-interest debt, it might be wise to pause and reduce it before buying Your debt-to-income ratio is under 55%. Want to learn more? Watch How Your Credit Score Affects Your Mortgage . Sign #3: You’re Ready to Stay Put Buying a home makes more sense if you plan to stay in one place for at least 3–5 years. Why? Because selling a home comes with closing costs, commissions, and possibly capital gains taxes. If you move too soon, you may not have built enough equity to make it financially worthwhile. Ask yourself: Are you planning to stay in the same city or job? Do you feel ready to settle down a bit? Sign #4: You’re Ready for the Responsibilities of Ownership Homeownership isn’t just about finances—it’s a lifestyle shift. Are you ready to: Maintain a yard Handle repairs Budget for appliances or home upgrades These are everyday realities renters don’t usually deal with. If you’re ready to take that on, it’s a strong sign you’re ready to buy. Need a reality check? Watch The Real Cost of Homeownership for a behind-the-scenes look. Sign #5: You’ve Budgeted for the Full Cost of Homeownership It’s easy to focus just on your monthly mortgage payment—but that’s only part of the picture. You also need to budget for: Property taxes Homeowners insurance Maintenance and repairs HOA fees (if applicable) If you’ve run the numbers and still feel comfortable, you’re probably in good shape. Red Flag: You’re Buying Out of FOMO If your motivation to buy a house is: Everyone else is doing it You’re afraid of being priced out You feel pressured by social media or family Take a step back. Fear of Missing Out (FOMO) is not a solid reason to buy a home. Your decision should be based on your goals, your finances, and your lifestyle—not the market hype. Not Sure If You’re Ready? We’ve Got You Covered Download our free Homebuyer Readiness Checklist to see where you stand Check out our Blueprint to Homeownership course for a step-by-step guide through the buying process Bottom Line Buying a house isn’t something to rush—but with the right preparation, it can be one of the most rewarding decisions you ever make. If you feel financially stable, ready for long-term commitment, and confident in your lifestyle plans—you may be ready to take the next step. Have questions? Reach out here Book a 15 Mins Call and we’ll walk you through it. Want more clear, honest mortgage advice? Subscribe to Loan With Jen on YouTube
Think you can’t afford to buy a home? You might be surprised. The income you actually need may be lower than you think. In fact, most people are asking the wrong question entirely. In this post, we’ll break down: How lenders really decide what you qualify for A simple formula to estimate your price range Why your debt matters more than your income Plus—how first-time buyers get approved with less than you’d expect It’s Not Just About Income—It’s About Debt-to-Income Ratio (DTI) Most people think income alone determines your buying power. But lenders focus more on your Debt-to-Income Ratio (DTI) . Here’s how DTI works: Your total monthly debt ÷ your gross monthly income = your DTI Most lenders want this ratio to be 45% or lower , though some loan programs will allow more. This calculation includes: Your new mortgage payment Property taxes Insurance HOA fees (if applicable) Any car loans, student loans, or credit card minimum payments Example: Let’s say you make $75,000 per year—that’s $6,250/month gross income. 45% of that = $2,812 Now subtract your monthly debts: Car loan = $500 Credit card payments = $300 Total = $800 That leaves you with about $2,000/month for a mortgage payment. What Kind of House Does $2,000/Month Get You? With interest rates around 6.5% , that could get you a home priced at $260,000–$280,000 , depending on your: Down payment Property taxes Location HOA dues Of course, this is just an estimate. You can plug your numbers into a mortgage calculator to get a more accurate idea based on your location and situation. How Loan Types Impact Income Requirements Your loan program plays a big role in how much home you can afford. Here’s a quick breakdown: FHA Loans : Allow DTIs up to 50%, and only require 3.5% down VA Loans : For veterans—no down payment required and very flexible income requirements Conventional Loans : Stricter guidelines; usually require 43–45% DTI and 3–5% down USDA Loans : No down payment, but must be in eligible rural areas and meet income caps And remember— a larger down payment means a smaller monthly mortgage , which helps you qualify for more. Credit Scores and Reserves Matter Too Even if you qualify on paper, your credit score and cash reserves play a key role: Higher credit score = lower interest rate = lower monthly payment Reserves are how much money you have in the bank after closing. Many lenders require at least 1–2 months of mortgage payments in reserves. Even if your income is borderline, having reserves can tip the scales in your favor. Real Buyer Stories: It’s More Possible Than You Think Story 1 : A couple earning $90K/year thought they needed to wait because of student loans. But with FHA, 3.5% down, and minimal other debt, they got approved for $325K—and closed on a home last month. Story 2 : A single teacher earning $52K/year bought a $210K condo using just 3% down and a first-time buyer grant. She didn’t think she qualified—until she did. Don’t Forget Side Income or Co-Buying You might qualify for more than you think if: You co-buy with a spouse, parent, or sibling You have side income (Uber, freelance, small business) that’s been on your taxes for at least 2 years That extra income can help you get approved. The Formula: Estimate What You Can Afford Here’s a quick formula to ballpark your buying power: Take your gross monthly income Multiply by 0.45 (max DTI) Subtract your monthly debts The remainder is your max mortgage payment (including taxes & insurance) Use a mortgage calculator to plug in that number and see what home price you might qualify for. Online mortgage calculators don’t take tax or insurance into consideration most times, but this will give you a ballpark figure. Before you get your heart set on a house though, reach out to a lender to find out your true buying power. It costs you nothing to get this information! Bottom Line: You Probably Don’t Need Six Figures to Buy a Home Most buyers are surprised by what they can afford. The key is understanding how lenders look at your full financial picture—not just your income. You don’t have to guess. And you don’t have to go it alone. Next Steps Take our FREE Blueprint to Homeownership course for a step-by-step guide Reach out to our team for a free strategy call —we’ll help you crunch the numbers and create a plan If you found this helpful: Subscribe to the Loan With Jen YouTube channel for weekly tips
You’re not starting over—you’re starting fresh. And yes, you can buy a home after a divorce. If you’re navigating a divorce or separation, I want to start with this: Big hug. Big kiss. This season of your life might feel uncertain or overwhelming, but you’re not broken. You’re rebuilding—and I’m here to help. Let’s walk through the 5 most common mistakes people make when trying to buy a house after divorce —and how to avoid them. 1. Your Credit Tells the Real Story—Not Just the Divorce Decree Here’s what most people miss: Even if a divorce decree says your ex is responsible for a shared mortgage or credit card, your name on the account means it’s your responsibility in the lender’s eyes. That means: Late payments by your ex will still hit your credit. A mortgage that your ex was supposed to refinance but didn’t? Still counts against your debt load. What to do: Pull your full credit report from all 3 bureaus : Experian, Equifax, and TransUnion Review all joint accounts : Are they closed? Paid off? Still open? Check if your ex has refinanced you off the mortgage —don’t assume, verify! Collect documentation if the mortgage responsibility was transferred Pro Tip: As a lender, I can do a soft credit pull for you—no ding to your score—to identify red flags before you apply! 2. Income After Divorce—What Counts (and What Doesn’t) Post-divorce income can be complex. Whether you're earning on your own or receiving support payments, lenders need proof of stability and consistency . What lenders typically require: W-2 income or 2 years of self-employment returns At least 3–6 months of child support or alimony payments (with documentation) A copy of your final divorce decree or court-ordered support agreement Watch out for: Informal payments (Venmo, cash) with no paper trail Newly ordered support that hasn’t been received yet Significant drops in income—these must be accounted for Pro Tip: If your income has decreased after divorce, we can explore co-borrowers, grants, or flexible loan programs to help you qualify. 3. The Old Mortgage Can Haunt You (Even If You Don’t Live There) Even if your ex is living in the home and paying the mortgage, if your name is still on the loan, it counts against your debt-to-income ratio. This can affect how much you qualify for—even if you’re renting now or planning to buy something smaller. How to handle it: Ask your ex to refinance the home and provide a release of liability from the lender. Ask the lender - before you are off the loan and still authorization to speak to the lender - to provide you with instructions on how to receive a release of liability. If refinancing isn’t happening, collect 12 months of canceled checks or bank statements showing your ex is paying from their own account If those options aren’t possible, you may need to wait until the home is sold or work with a lender who understands how to navigate this scenario 4. Don’t Skip the Emotional Prep—Buying a Home Is a Big Deal Divorce doesn’t just impact your finances—it affects your emotions, too. Even if you're financially ready to buy, make sure you’re mentally and emotionally ready to take on homeownership again. This is especially true if you're moving from a home that holds memories or are co-parenting with children. Ask yourself: Am I rushing to buy just to feel “settled”? Is this home choice based on my new lifestyle , not my old one? Do I have the support system and clarity to take on this responsibility? Mindset Tip: Your next home should support your fresh start , not keep you tied to the past. You’re building your life now—on your terms. 5. Timing Is Everything—Don’t Rush the Process After a divorce, it’s tempting to try and “fix” everything fast. But buying a home is a major financial move, and sometimes waiting just a few months can make a big difference. Reasons you may want to pause briefly: Waiting for credit to improve Gathering more documentation or saving for a down payment Giving support payments time to become “seasoned” (most lenders want 3–6 months of consistent payments) That said, you don’t have to put your life on hold forever. The key is working with someone who knows the post-divorce lending landscape and can help you make informed choices. You’re Not Alone—And You Can Do This Whether you're newly separated or a year into your new chapter, you deserve a place to call your own. And you don’t have to navigate this alone. Ready to get started? Here are your next steps Get a free credit and income readiness review —just message me Take my Blueprint to Homeownership course if you want a full step-by-step roadmap. You’ve got options. You’ve got support. And most importantly—you’ve got this. I’m here to help you rebuild with confidence. Let’s find your fresh start.
Did you know that buying a home doesn’t just build equity… it actually lowers your tax bill every single year ? Whether you're a first-time homebuyer or looking to grow your investment portfolio, real estate offers powerful tax advantages that most people don’t even realize exist. I even have a legal strategy that helps real estate investors defer taxes on hundreds of thousands of dollars in profit. Why Does Real Estate Have So Many Tax Perks? Simple: The government wants you to buy real estate. Homeownership and property investment fuel the economy, so the IRS offers major tax incentives just for owning property. But many people miss out on these benefits—either because they are unaware or didn’t plan ahead with a qualified professional. Tax Benefits for Homeowners (Primary Residence) If you’re buying a home to live in , here are the top 3 tax perks you need to know: 1. Mortgage Interest Deduction You can deduct the interest portion of your mortgage —which is a huge portion of your payment in the early years. For most people, the deduction applies to loan amounts up to $750,000 (if married filing jointly). Fo example, if your loan is $400,000 at 6% interest, you’re paying ~$24,000 in interest your first year—most of which may be deductible. 2. Property Tax Deduction You can deduct state and local property taxes , up to $10,000 per year (or $5,000 if married filing separately). While not as generous as it once was, it’s still a meaningful deduction, especially in higher-tax areas like Texas . For Texas-specific property tax resources, check out the Texas Comptroller’s Property Tax Help page. https://comptroller.texas.gov/taxes/property-tax/ 3. Capital Gains Exclusion When you sell your primary home, you may be able to exclude up to $250,000 of the profit (or $500,000 if you are married) from capital gains tax. The catch: You must have lived in the home for at least 2 of the last 5 years. That means if your home appreciated $400,000 and you're married—you could pay zero tax on that gain! Watch: How to Avoid Capital Gains Tax on Your Home Sale Tax Benefits for Real Estate Investors This is where the real tax magic happens. As an investor, you’re not just earning income—you’re tapping into one of the most tax-advantaged asset classes in the country. Here are five big tax breaks available to real estate investors: 1. Depreciation Even if your rental property is appreciating in value, the IRS lets you “pretend” it's losing value for tax purposes—this is called depreciation . A $275,000 rental property (excluding land) can generate $10,000/year in depreciation —offsetting your rental income on paper and lowering your taxable income.
Down payment assistance programs (DPAs) sound like a dream come true—free money to help you buy a home! But before you get too excited, there are hidden costs and crucial details you need to be aware of. Let’s uncover the real impact of DPAs so you can decide if they’re the right fit for you. What Are Down Payment Assistance Programs? Down Payment Assistance Programs, or DPAs, are designed to help homebuyers, particularly those with limited income, afford a home. While many of these programs are for first-time buyers, some cater to repeat buyers as well. Here are the key factors to consider: Income Limits: Most DPAs have income restrictions based on your area’s average median income. Credit Score Requirements: Your credit score will need to meet a minimum threshold. Geographic Restrictions: While some programs are available statewide, others are limited to specific locations. Types of Down Payment Assistance Grants – Free money that doesn’t need to be repaid. These are typically reserved for first-time buyers. Forgivable Loans – A second mortgage that is forgiven after you live in the home for a set period (commonly 3, 10, or even 20 years, depending on the program). Deferred Payment Loans – A second lien with no required payments until you sell or refinance your home. This must be repaid when you pay off your first mortgage. Sounds great, right? Well, let’s dive into the hidden costs and fine print you need to be aware of. The Hidden Costs of Down Payment Assistance 1. Higher Interest Rates Most DPAs come with a higher interest rate compared to conventional financing. This means you could be paying thousands more in interest over the life of your loan. While some programs offer competitive rates, qualifying can be more difficult. 2. Increased Closing Costs In addition to a higher interest rate, many DPAs come with additional fees, such as: State Administration Fees: These can range from $500 to $600. Origination Fees: Some lenders charge a percentage of the loan to access the program. Before committing to a DPA, compare a loan estimate with and without assistance to see the true cost side by side. 3. Restrictions on Occupancy Many DPAs require you to live in the home as your primary residence for a set period. If you decide to rent it out, you could be required to pay back the assistance in full. 4. Income and Location Restrictions Most programs have income caps based on your area’s median income. If your income exceeds the limit, you won’t qualify. Some programs also require you to buy in specific areas. 5. Recapture Tax (Resale Requirements) Some programs include a recapture tax , meaning if you sell your home for a profit, the program can claim a portion of that profit as repayment for the assistance. This can be a significant financial setback if you weren’t expecting it.
Dreaming of owning a home but haven’t saved up for a down payment? You’re not alone—and good news: there are options for you! In this post, we’ll break down four powerful ways to buy a home with little or no money down —plus, a few key mistakes to avoid that could cost you thousands. These are real strategies we use with buyers every single month. 1. USDA Loans – For Rural Buyers The USDA loan program, which is backed by the United States Department of Agriculture , offers 0% down financing for eligible properties and borrowers. The catch? There are income and geographic restrictions . Good for : Rural or suburban buyers outside city limits Down payment : $0 Bonus : Lower mortgage insurance than FHA Check if a property qualifies for USDA Watch this video : Understanding USDA Loans with Jen 2. VA Loans – For Veterans and Their Families If you’re a veteran or the surviving spouse of a veteran, the VA loan offers a $0 down path to homeownership—with no mortgage insurance and loans available up to $2 million ! Good for : Active military, veterans, or qualified spouses Down payment : $0 Bonus : Flexible credit guidelines and competitive rates Watch this video : How VA Loans Work 3. Down Payment Assistance (DPA) If USDA or VA don’t fit your situation, down payment assistance programs (DPAs) might be your best option. These programs are provided at the state, county, or city level , and they can cover some or all of your down payment and/or closing costs. Good for : First-time and repeat buyers with limited savings Down payment : Partial or full assistance Bonus : Can sometimes be combined with seller credits Texas buyers, check out: 🔗 My First Texas Home Program 🔗 Texa s State Affordable Housing Corporation (TSAHC) Video breakdown : Down Payment Assistance Explained 4. Gift Funds – From Family or Close Friends Did you know you can receive money as a gift to help with your down payment? That’s right. FHA, VA, USDA, and Conventional loans all allow gift funds on primary residence purchases. But before you make a huge cash deposit, make sure you talk with your lender about how to document the gift. Good for : Buyers with supportive family Down payment : Fully or partially covered by gifts Note : Must be properly documented with a gift letter and proof of transfer Learn more : How to Use Gift Funds
Your credit score is the key to unlocking your financial future. Understanding how it’s calculated can help you make better financial decisions and avoid costly mistakes. Many people find their credit score to be a mystery—sometimes it drops even when they make payments on time! If you've ever been frustrated by fluctuations in your score, this guide will break down the five key components of your credit score so you can take control and boost it effectively. Why Your Credit Score Matters Your credit score is a three-digit number that reflects your financial responsibility to creditors. It affects everything from securing a mortgage or auto loan to getting approved for credit cards and even determining your interest rates. The better your score, the more favorable your loan terms— lower interest rates, smaller deposits, and better financial opportunities . In fact, 90% of lenders use FICO scores as their primary credit evaluation tool ( source ). But how exactly is your FICO score calculated? Let’s break it down. The 5 Components of Your Credit Score 1. Payment History (35%) – Never Pay Late! Your payment history is the most important factor in your credit score. It includes: On-time vs. late payments (payments that are 30+ days late are reported to credit bureaus) Collections and charge-offs Bankruptcies or foreclosures 🔹 Pro Tip : Always pay at least the minimum payment by the due date. Setting up auto-pay can help prevent accidental late payments. If you’re struggling, reach out to creditors to discuss payment plans before you fall behind. 📌 More on improving your payment history: How Late Payments Affect Your Credit Score 2. Credit Utilization (35%) – Keep Your Balances Low Your credit utilization ratio refers to the percentage of available credit you’re using. High utilization can hurt your score, even if you pay your balance in full each month! 🔹 Best Practice : Keep your credit card balances between 10-30% of your credit limit. For example, if you have a $5,000 limit, don’t carry a balance higher than $1,500 at any time. 🔹 Secret Tip : Your balance is reported to the credit bureaus on your statement closing date , NOT when you make a payment. If you pay your credit card bill before the statement closing date, you can lower the reported balance and improve your utilization ratio. 📌 More on credit utilization: Mastering Your Credit Score 3. Length of Credit History (15%) – The Longer, the Better Credit bureaus consider how long your accounts have been open. Older accounts demonstrate stability and reliability . 🔹 Best Practice : Avoid closing old credit accounts, even if you don’t use them often. Keeping them open helps maintain your average account age . 📌 More on the importance of credit history: How are Credit Scores Made? 4. New Credit & Inquiries (10%) – Be Careful with Hard Pulls Every time you apply for credit, a hard inquiry is recorded on your report, which can slightly lower your score. Applying for multiple credit accounts in a short time signals to lenders that you may be in financial trouble. 🔹 Best Practice : Keep new credit applications to a minimum and only apply when necessary. 🔹 Good to Know : Soft inquiries (like checking your credit score on your own) do not affect your credit score! 📌 More on credit inquiries: Does a Hard Enquiry Damage My Credit Score? 5. Credit Mix (10%) – Variety Matters Having a healthy mix of credit types boosts your score. Lenders like to see that you can manage different types of credit responsibly . A strong credit mix includes: Installment loans (e.g., mortgages, auto loans, student loans) Revolving credit (e.g., credit cards, home equity lines of credit) 🔹 Best Practice : If you only have one type of credit, consider adding another responsibly (e.g., opening a credit card if you only have loans). 📌 More on credit mix: How Your Credit Mix Affects Your Score
Does a Hard Inquiry on Your Credit Really Hurt Your Score? If you're planning to buy a home in Texas, you may be wondering: Does a hard inquiry on your credit really damage your score, and how will it affect your chances of mortgage approval? Let's break down what a hard inquiry is, how it impacts your credit, and strategies to minimize its effect so you can confidently move forward with your home purchase. What is a Hard Inquiry? A hard inquiry occurs when a lender checks your credit report to assess your creditworthiness for a loan, credit card, auto loan, or mortgage. Unlike soft inquiries (which happen when you check your own credit or when a lender pre-qualifies you without a formal application), hard inquiries are recorded on your credit report and may impact your credit score. Inquiries remain on your credit report for up to two years , but the good news is that FICO scoring models (used by 90% of lenders) only consider them for one year. This means that while the inquiry stays visible on your report, its impact on your score diminishes after 12 months. How Hard Inquiries Affect Your Mortgage Approval A hard inquiry alone is unlikely to prevent you from getting pre-approved for a mortgage. However, here’s what you need to know: FICO Treats Multiple Mortgage Inquiries as One: If multiple mortgage lenders pull your credit within a 30-day window , it only counts as one inquiry for scoring purposes. This allows you to shop for the best mortgage rates without penalty. Other Inquiries Can Hurt Your Score: While mortgage inquiries are grouped together, applying for credit cards, auto loans, or personal loans during the same time frame can lower your score. Impact Depends on Your Existing Credit Score: If your credit is already strong (e.g., 700+ score ), a hard inquiry may have a minimal effect—think of it as a small “peck” on a steel building. However, if your credit is already struggling, an additional inquiry could have a more noticeable impact. 👉 For a deeper dive into credit scores and mortgages, check out Loan with Jen’s guide on mortgage pre-approvals .