Looking for a New Home? Check Your Credit Score First
How Lenders Evaluate Loan Applicants
Every lender or financial institution, rejects or accepts your home loan or mortgage application on the basis of your credit score and history. Most lenders have certain credit score benchmarks from which they extrapolate the rate of interest to be charged on loans. Scores in the 700s are considered “good” by most institutions and anything above this only increases your chances of securing a low interest rate loan for your new house.
While most lenders consider a score of 660 to 680 to be acceptable, as it moves down to 660 or below, the asked rate of interest begins to increase. Some entities also accept applicants with a credit score of 620 to 640, but the options offered to them are not among the best in the lending business. In fact, some might not turn down your application even if the score is touching the alarm line of 500.
If an applicant’s score is in the 500s, lenders place them in the category of “subprime loan” applicants. These loans are offered to people who usually lack a stable payment history, due to factors such as loss of job, medical emergencies, divorce, etc. The interest rates charged on these loans are usually much higher than what the primary borrowers are asked to pay on similar loans.
The Good News: Credit Damage is NOT a One-Way-Street
Though there is no denying the fact that a low credit score can impede your home buying options, you can work to restore your credit score. Disciplined financial behavior, such as making timely payments and maintaining a healthy debt-to-credit ratio, not only helps you to increase a low credit score, but also ensures that it gets even better with time. In addition, if you doubt the accuracy of any of the entries in your credit report, do not waste any time in getting them rectified.
Contact us today to run a free credit history report. The work you put into restoring your credit now, will save you money later in interest on your home mortgage.
About the author
