Finance Your Home
5 Factors That Decide Your Credit Score
8 Ways to Improve Your Credit
What Do a Lender Need From You to for mortgage application?
Choices That Will Affect Your Loan
5 Factors That Decide Your Credit Score
Credit scores range between 200 and 800. Scores above 620 are considered desirable for obtaining a mortgage. These factors will affect your score.
1.
Your payment history. Whether you paid credit card obligations on time.
2.How much you owe. Owing a great deal of money on numerous accounts can indicate that you are overextended.
3.The length of your credit history. In general, the longer the better.
4.How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.
5.The types of credit you use. Generally, it’s desirable to have more than one type of credit—installment loans, credit cards, and a mortgage, for example.
8 Ways to Improve Your Credit
Credit scores, along with your overall income and debt, are a big factor in determining if you’ll qualify for a loan and what loan terms you’ll be able to qualify for.
1.Check for and correct errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.
2.Pay down credit card bills. If possible, pay off the entire balance every month. However, transferring credit card debt from one card to another could lower your score.
3.Don’t charge your credit cards to the maximum limit.
4.Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.
5.Don’t purchase big-ticket items for your new home on credit cards until after the loan is approved. The amounts will add to your debt.
6.Don’t open new credit card accounts before applying for a mortgage. Having too much available credit can lower your score.
7.Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.
8.Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.
10 Things a Lender Needs From You
1.W-2 forms or business tax return forms if you’re self-employed for the last two or three years for every person signing the loan.
2.Copies of one or more months of pay stubs from every person signing the loan.
3.Copies of two to four months of bank or credit union statements for both checking and savings accounts.
4.Copies of personal tax forms for the last two to three years.
5.Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
6.Copies of your most recent 401(k) or other retirement account statement.
7.Documentation to verify additional income, such as child support, pension, etc.
8.Account numbers of all your credit cards and the amounts of any outstanding balances.
9.Lender, loan number, and amount owed on other installment loans—student loans, car loans, etc.
10.Addresses where you lived for the last five to seven years, with names of landlords, if appropriate.
Choices That Will Affect Your Loan
Mortgage term. Mortgages are generally available at 15-, 20-, or 30-year terms. The longer the term, the lower the monthly payment if the same amount is borrowed. However, you pay more interest overall if you borrow for a longer term.
Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate for as long as you hold the mortgage and is usually a good choice if interest rates are low. An adjustable-rate mortgage (ARM) is designed so that interest rates will rise as interest rates increase; however they usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. ARMs are a good choice when interest rates are high or when you expect your income to grow significantly in the coming years.
Balloon mortgages. Balloon mortgages offer very low interest rates for a short period of time—often three to seven years. Payments usually cover only the interest, so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.
Government-backed loans. Government-backed loans, sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the U.S. Department of Veterans Affairs (www.va.gov), offer special terms, including lower downpayments or reduced interest rates—to qualified buyers.
Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment.
