Credit Info And Mortgages
Are you and your spouse thinking of buying a house? Do you know what your credit scores are? Furthermore, do you know you’re entitled to get your free credit scores online through each of the three reporting bureaus; Equifax, TransUnion and Experian? The meaning of credit scores can be convoluted to many Americans, but the first thing you need to look at, before looking at houses, is your number. If your score is over 700, then you’ll qualify for the best mortgage interest rates. If your rate is less than 600, then forget about qualifying for a loan at all, given the new lending standards! Knowing your credit info before you start looking is critical to avoiding the embarrassment and disappointment of finding your dream house, but being unable to gain financing.
Once you know your credit scores, you can work out any blemishes before home shopping. This should be done six months to a year before you plan on buying. If you have a score higher than 700, you needn’t worry. If you’re in the 500s or 600s, then try to pull your score up 100 points to get the best mortgage interest rates. There are five ways you can do this in six months time. First, you can reduce your credit card balances down to 30% of their credit limits.
Secondly, you can cut your credit cards in half, but don’t cancel your account because you’ll lose points and increase the amount of available credit you’re using up. Thirdly, it can boost your credit score to mix up your credit portfolio. A healthy portfolio may include three unsecured credit cards, as well as a form of secured credit, which is like a student loan, auto loan, home equity loan or installment loan. Lastly, you can negotiate with all of your creditors to remove late payments, which can improve your credit overnight.
In addition to having healthy credit info and good credit scores, a prospective homeowner should work out a budget to see what kind of a monthly payment can realistically be afforded, given the monthly budget. As a general rule, borrowers can pay two-and-a-half times their annual salary. Lenders have traditionally calculated monthly payments using no more than 28% to 44% of your monthly income. For instance, you should not pay more than $800 toward all your debts if your monthly income is $2,000. You can also calculate your debt-to-income ratio by adding up all your monthly debts and dividing by your monthly income. If your debt-to-income ratio is under 20-30%, then congratulations, you are financially stable!
Understanding how your credit info factors into your mortgage approval process is important. One of the biggest problems for many people is that they sell themselves short or feel they have limited options, even though there are many. Poor credit scores aren’t the end of the world. Do not seek a sub-prime outlet if your credit is in the 500s; instead, try to work on your credit portfolio and be patient.