The Importance Of Credit Score For First Time Home Buyers
Before you qualify for a decent mortgage loan, some requirements have to be fulfilled. There are many types of loans and to know which type of mortgage you will be offered largely depends on your credit score. Not obtaining a credit report before applying for the loan is a mistake many first-time homebuyers make. Let’s discuss the different types of mortgages before proceeding with the credit score. There are basically four types of loans: fixed-rate, adjustable rate, balloon loan, and government loans. Fixed-rate mortgage can be obtained for 15, 20 or 30 years. If your credit score is good, you can get a lower interest rate and it will stay the same over the years for this type of mortgage. The 30-year fixed-rate mortgage is often the easiest to obtain.
If you plan to sell your home in the near future, variable or adjustable rate mortgage will be best suited to your requirements. This is because the first interest rate that you pay is usually lower than the subsequent installments. Balloon loan refers to the type of mortgage in which you have to pay small installments for a period of five to ten years and after that the remaining amount has to be paid at once.
Many parts of your credit report are scrutinized by the lender in order to see whether you quality for the loan or not. One of these aspects is your debt-to-income ratio. The lender will need to know how efficiently you have paid back your past loans. If your debt-to-income ratio is bad, you should first consider paying off at least some amount of the debt before proceeding with your decision of buying a new home.
Your credit score also reveals the total amount of money you owe as debt. If it is a huge amount, you might not qualify to get loan for your new home. However, there are ways to improve your credit rating either by paying off the debt or attempting to correct the mistakes that might make your credit score look bad.
Many people ask the question what should be the credit score to qualify for a mortgage loan. Normally, a credit score of 750 or above is considered excellent. Even if your score falls in the range of 600 to 650, you have pretty high chances of securing the loan. But if it is lower than this, you may want to reconsider your decision of buying a new home.
Always try to keep your credit history clean by regularly inspecting your credit report for correctness. Opening new credit car accounts when you are not going to use them can also have a negative effect on your credit rating. If you cannot afford something, don’t plan on buying it through credit. Always pay your bills on time instead of piling them up. Your credit score is also affected by the degree of delinquency on your report. Even after you have paid off the bills, delinquencies will stay on your credit report for an indefinite period of time. So, it’s a good practice to shell out all due payments on time.
For those who have a low credit score, there are several options available in the government loans category, one of which can be availed to buy a new home. In fact if you are a first-time homebuyer, the government FHA loan might prove to be the best available option for you. There are many advantages of this type of loan. Although the interest rate in a FHA loan is dependent on your credit history, it’s still not very difficult to secure this type of loan for home buying.
Get your credit report today and see which option best suits you.