How home loans are affected by credit
How Credit Affects Home Mortgage Loans
When applying for a home loan, you want to make sure you have the best possible credit score. Your credit has a big impact on your loan. Your credit profile will affect your home loan interest rate, your ability to qualify for a home loan, and the type of home loan program you can apply for.
Because your credit plays an important role in the home loan process, it’s important to understand the relationship between credit and the home loan qualification process. It’s also important to know what you can do to get the best possible credit profile and score before applying for a home loan.
Bankruptcies and Foreclosures
Bankruptcy and foreclosures are two major negative items on a credit report that can have a big impact on your loan decision. In the event of bankruptcy, depending on whether it is a Chapter 7 or 13 bankruptcy, you may have to wait 2-4 years before the mortgage is approved. FHA home loans allow a homebuyer to qualify for bankruptcy if the bankruptcy has been discharged for at least two years. Customers with a bankruptcy on their credit report must also reestablish their credit with positive business lines (new accounts) and have no new negative credit reports to the bureaus since the bankruptcy was filed.
Foreclosures have a major impact on the ability to qualify for the mortgage, as many home loan programs require the customer to wait 3-5 years from the date of foreclosure before the loan can be approved. . Short sales, depending on how they are reported to the credit bureaus, may be treated as a foreclosure when a mortgage company makes a mortgage decision.
Statements and Links
If a person has a judgment or lien on their credit report, most mortgage companies and loan programs will require the lien or judgment to be paid and released before the loan is approved. Tax links need to be paid!
credit score
Your credit score is the number that lenders will use to determine your ability to qualify for a home loan. It is crucial to have the highest possible credit score when applying for a mortgage. If you have a low credit score, you may not qualify for the mortgage or may have a higher interest rate. FHA home loans require at least a 580 credit score, but many companies will not approve an FHA loan unless the homebuyer has a 620 credit score. Conventional home loans require a 620 score , but if your down payment is less than 20%, then you’ll need at least a score of 680 to qualify for the home loan.
What affects credit score and how you can increase your score
Obviously, paying off all credit debt on time has a big impact on your credit score. So, if you missed a payment, it will only take some time (usually 6-18 months) for your score to return to the original score before the delay occurred. Missing a mortgage payment when trying to refinance or buy a new home has a huge impact on your ability to get approved. Many home mortgage loan programs will not approve a loan if a mortgage payment has not been made in the last 12 months. Late payments on credit cards will also lower your score.
Credit card balances also have a crucial impact on your score. Maxed out credit cards will lower your score. It’s a good idea to keep credit card balances around 10% of the credit card limit. This means that if you have a credit card limit of $3000, then you don’t want to keep a balance of more than $300 on the credit card. Paying off your revolving debt or consolidating your revolving debt into an installment loan will help increase your score. Installment loans are loans with terms that once the term is complete, the debt is paid off. You also cannot add new debt on an installment loan. In a revolving debt, you can pay off and add debt.
Once the mortgage is approved
Once you have been approved for a home loan, it is important to know that you should not add any new debt during the home loan process. Adding new debt while you are still in the loan process could affect your ability to close on your home loan. Therefore, it is best to wait until the mortgage loan has been closed and financed before adding new debt to your credit profile.