How Does My Credit Affect My Mortgage?

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How Does My Credit Affect My Mortgage?

Similar to the application process for other loans, the application process for a mortgage loan requires the potential borrower to consent to a credit check. While this may sound daunting or invasive, it is necessary in order to receive any kind of funding for such a large purchase. In face, a credit score is usually, if not always, one of the most influential determinants of your mortgage rate.

So how exactly does your credit affect your mortgage? The simplest answer to this question is the higher your credit score, the lower your interest rate will be for your mortgage loan. This doesn’t explain much, though, does it? In fact, this might even create some more questions that need to be answered.

First, what is credit? Credit is a compilation of your credit scores and credit report, including your credit history. Car loans, school loans, and any credit card payments you have made have all affected your credit. You may not have much credit history at this point, but becoming a homeowner gives you the ability to build your credit over time. And remember, some credit is much better than no credit at all.

Second, what does a lower interest rate really mean for me? As a general rule, a lower interest rate when you are borrowing money is always better. This means that less interest will be added to your loan payment. The lower your interest rate, the less extra money you will owe the lender over time and the lower your monthly payment will be.

Third, what does a lender look for in terms of credit? Mortgage lenders look for good credit scores and the absence of bad credit marks, including defaults in payments, lawsuits, bankruptcies, etc. Your payment history is the greatest factor in the credit score, so it is very important that you remain on top of your finances, especially when applying for a mortgage loan. While extremely important, your credit is not the only thing a lender will examine before approving or denying you a mortgage loan. If you would like more information about what to expect in terms of a credit check, contact one of our Towne Mortgage Loan Originators.

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What Do I Need for a Mortgage Application?

So you’ve found your dream home – congratulations! Now all you have to do is apply for a mortgage loan and you’re one step closer to moving in! A mortgage loan application is relatively similar to other loan applications, with the addition of property specifics. In order for the lender to feel comfortable giving you the amount of money you are requesting, you will need to provide financial specifics that prove your fiscal responsibility and reliability.

When applying for a mortgage, there are certain things that the lender, regardless of who your lender is, will require you to provide. Bringing these items with you when you begin the mortgage application process will inevitably save you time. Keep in mind, the specific lender you use might ask for additional items or variations of these items, but this list is an excellent resource to ensure you are on the right track when you meet with your lender.


 

Proof of Income

Pay Stubs
Bring all of your pay stub/s from the most recent month.

W-2 Forms
Bring the past two, which were sent annually by your employer around the tax season.

Tax Returns
Bring copies of your past two federal tax returns.

Proof of Assets

Bank Account Statements
Bring copies of your bank statements from the most recent past three months.

Investment Accounts
Bring statements from any/all investments you have, such as stocks, bonds and life insurance.

Gift Letter
If you are receiving a monetary gift to put towards your home, you should bring proof of this so your lender can confirm the receipt of the gift.

Proof of Debts

Vehicle and Installment Loans
Bring details about any loans you are paying off for your vehicle.

Education Loans
Bring the details about the amount still owed on your student loans.

Credit Card Accounts
The lender will perform a credit check with your mortgage application submission, but you should also bring information about your credit card accounts to prove that you are capable of paying off debts.

Property Verification
Your real estate agent can provide you with this documentation.

Purchase Agreement

Legal Description of the Property Being Purchased

Copy of the Listing Sheet

Other

Social Security Number

List of Previous Addresses
Dating back two years.

A Diploma or Transcript
If you were a full-time student during the past two years.

Depending upon your individual situation, there may be more documents that your lender requires you to bring to complete a mortgage application. If you have any questions about the mortgage application process, necessary documents, or anything related to becoming a new home buyer, feel free to contact a Towne Mortgage Loan Originator!

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How Do I Know Which Type of Mortgage is Best For Me?

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How Do I Know Which Type of Mortgage is Best For Me?

The number of different mortgage loans available can be overwhelming; the more you know about the various types before you need to choose one to apply for, the better. If you would like more detailed information about any of the following mortgage loan types, or if you would like to speak to someone about your individual situation and receive assistance in selecting the best loan, Towne Mortgage Mortgage Loan Originators are always happy to help.

Fixed-Rate
• A mortgage spread over 10, 15, 20 or 30 years where the interest rate remains the same.

Advantages
• Monthly payments are fixed over the life of the loan
• Interest rate does not change
• Protected if interest rates increase
• Disadvantages
• Higher interest rate
• Larger mortgage payments
• Interest rate remains fixed regardless of market fluctuation
• Worth Considering If You…
• Plan to stay in the home for a longer period of time
• Have an established credit history
• Can put at least 5% down

Adjustable-Rate
• A mortgage that offers low initial interest rates and monthly payments, but these can change over time.

Advantages
• Lowest short-term rates
• Lower initial monthly payment
• Rates and payments may go down if rates improve
• May qualify for higher loan amounts
• Disadvantages
• Exposure to interest rate risk
• Payments may change after fixed period
• Potential for high payments if interest rates increase
• Worth Considering If You…
• Know you’ll be moving within the next few years
• Have an established credit history
• Can put at least 5% down

FHA
Government-backed loans with flexible guidelines, intended to make home ownership easier.

Advantages
• Low down payments
• Competitive interest rates
• Flexible qualification guidelines
• Disadvantages
• Lower loan limits
• Must meet certain guidelines
• Worth Considering If You…
• Don’t have an established credit history
• Have poor credit
• Have limited funds for a down payment

VA
Government-backed loans for military members or their surviving spouses.

Advantages
• Little to no down payment
• No mortgage insurance requirement
• Flexible qualification guidelines
• Disadvantages
• Lower loan limits
• Must meet certain guidelines
• Worth Considering If You…
• Are an active military member or veteran
• Are the surviving spouse of a service member who passed as a result of military service

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