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.