Credit Scores – Here’s What Matters

Don’t become too fixated on your credit score. There are other factors that determine whether you qualify for the home loan that you are looking for.When you are trying to qualify for a home loan, it’s easy to get fixated on your credit score. A lot of people check it day after day, obsessing over every minute shift up or down. But, it’s important to keep your eye on the big picture and remember the other factors that determine whether or not you will qualify for the loan that you want.

Your Debt to Income Ratio

Even if your credit rating is high, if you have too much other debt, it can keep you from getting a loan. If you are on the hook for too much every month, lenders could decide that you are living too close to the edge. If you have the funds to do so, consider paying off installment loans and paying down credit cards to improve your debt to income ratio.

Your Payment History

Have you been late on a mortgage payment within the last year? That could disqualify you from getting a new loan. Lenders tend to hedge their bets and are often only willing to lend to those with a good recent history on their last mortgage.

Your Monthly Income

Creditors will look at how much you and your spouse earn every month when determining whether you qualify for a loan. In some cases, your income may not be deemed high enough to support the mortgage needed for the home value you want. You may need to look in a less expensive market or look for a smaller home.

Lenders also generally look only at income that is predictable going forward. Usually, this means that they will not consider bonuses or overtime pay. But, if you earn overtime every week or have dependably earned a regular bonus, you may be able to get a lender to consider this pay when deciding on your qualification for the loan.

Your Down Payment

Depending on what sort of mortgages you are looking at, you will need to have anywhere for 3% to as much as 20% for a down payment on the home. Some types of loans allow you to use money gifted from friends or family. Other require that you raise the money yourself.

If you had been considering making only the minimum down payment, find out if a larger one will help you qualify. You can also put extra money toward other closing expenses if you are close to qualifying.

Remember that every aspect of a home loan is negotiable. For instance, if the monthly payment on the loan would be a higher ratio of your income than is usually allowed, you can get limits extended by demonstrating that you have reliably made a rent payment that is even higher. Or, you can get lenders to work with you by giving a higher down payment. Don’t be afraid to ask your lender what you need to get the loan you want.

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