Dallas is one of the hottest real estate markets in the country, but experts at Dallas-based ScoreSense caution that homebuyers could be overpaying.

The ScoreSense team—credit monitoring tech from One Technologies that offers credit reports and scores from all three bureaus, as well as daily credit monitoring—is seeing financial implications arising from people who pay more than their budget can afford.

The company has realized that buyers are impatient, waving home inspections and paying through the roof just to beat out other offers on their dream home.

That’s why they’re telling locals to be aware of market conditions—and why they’re working to assist clients in avoiding serious financial consequences.

ScoreSense says its differentiating factor is that it sees what lenders see. The technology can update clients monthly with different credit score reports, monitor suspicious activity that may pose as a threat to clients’ credit and identity, pinpoint what is most affecting scores, and protects clients’ money should identity thieves strike. 

Carlos Medina, SVP and head of strategic partnerships, operations, and business development at One Technologies, understands that homebuying can be overwhelming, especially for first-timers. He talked with Dallas Innovates on some trends in the market buyers can avoid—and how ScoreSense’s technology can make a big impact.

What should homebuyers know about their credit scores? 

CM: Credit scores typically range from 300 to 850. There are five main factors used to calculate credit scores for lenders to figure out how likely you are to pay back your debt—a deciding factor in whether you will get a new loan. These include payment history (the most important),  how much of your available credit you’re utilizing and how much you owe, your credit history length, your credit mix, and the number of credit accounts you’ve recently opened.

So yes, unfortunately even just one late bill is costing you more than you think. But as your financial profile changes, so does your score, so knowing what factors and types of accounts affect your credit score gives you the opportunity to improve it over time.

What challenges are first-time homebuyers now facing?

When you have limited supply very high demand, you tend to make what I call “more irrational home-buying decisions.”

Homebuyers who are paying above appraisal values and waving home inspections may be paving the way for a risky financial future. The biggest variable is your interest rate, and the best driver of your rate is your credits score. Many of our customers enroll to understand their credit scores before applying for a new mortgage, but they find themselves in trouble again after making their purchases.

Many think that after a mortgage, they’re in the clear. But your credit score is something you need to constantly monitor—and its OK to ask for help.

What trends are you seeing in the market?

What we are noticing, especially with the younger generation, is that first homebuyers tend to buy fixer-uppers because they believe it is within their affordability range. But they’re actually 30 percent higher in cost.

After overpaying for homes, many buyers have little to no savings. Impatient and excited, they’re opening new lines of credit and taking on more debt to purchase furniture, window coverings, linens, and even repairs they waived when negotiating the purchase. Applying for different types of loans within a short period of time will have a negative effect on a credit score.

What can a homebuyer do to plan before buying a home?

Your credit score will drive your interest rate and the cost of your mortgage. Homebuyers should plan before buying a home, work to understand their credit scores, and ensure their credit reports are free from inaccuracies.

For example: A buyer with a credit score of 720 might get a rate of 2.8 percent in today’s market. But with a 620 credit score, the rate could be 4.2 percent. On a $400,000 house, a buyer with a 4.2 percent rate would pay about $110,000 more over the life of the loan than he or she would have paid with a rate of 2.8 percent.

Overpaying for a home only makes this situation worse.

What is the best thing one can do as a prospective homebuyer? 

Dallas-Fort Worth has been, let’s say, blessed for this economic boom in the real estate and housing market. It has been an incredible opportunity for people to buy. I’d say the best thing you can do is to be watchful of how much debt you’re getting into.

Don’t go after more than you can afford—eventually, you can get in trouble. But in order to do that, you must appropriately plan. I always tell people there are really four key factors when preparing to buy a home:

• Establishing credit at least 12 months before buying a home: Lenders prefer a mix of revolving credit (credit cards) and installment loans (auto, student).

• Reducing debt 30 days before seeking a mortgage: Pay your credit card balances down to at most 20 percent of your available card limit.
• Limiting  your mortgage shopping time frame: To avoid multiple hard inquiries on your credit reports, keep your rate shopping to 14 days.
• Do not open any other accounts during the mortgage process as this can alter your interest rate at closing or cause you not to be able to close.

This interview has been edited for brevity and clarity.

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