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The Importance of Credit in Getting a Home Loan

As you can imagine, when you apply for a loan, the first thing the potential lender will do, is to check your borrowing and re-payment history, to determine if you should even be granted a loan. Therefore, your credit score is one of the first things a lender looks at when you apply for credit. Your credit score will help a lender to determine how financially responsible you are, as well as whether or not you are likely to default on a loan. Whether you apply for a credit card, mortgage or car loan, your credit score will determine whether you are approved and also at what interest rate and what loan amount. The higher your credit score, the better your chances.

If you are applying for mortgage financing, your credit history is very important. This is especially so in these days because lenders are implementing more stringent lending requirements, and a good credit score may just help to push you through and secure your home loan.

Mortgage lenders use your credit score to ascertain your level of financial responsibility and a low credit score may suggest that you are a bad credit risk, and that you are likely to default on your loan, which will usually result in your loan application being denied Of course, other factors are also taken into consideration when applying for a mortgage loan, such as a person's income and employment status. However, the credit score can often be the deciding factor.

Even if you are approved for a mortgage loan with credit that is less than perfect, you will still feel the pinch of bad credit, as chances are you will pay a price for that. This is because only individuals who have good credit ratings will qualify for the best interest rates.

Though this might not seem like a major issue, higher interest rates will cost you in the long run and will add up to a lot of extra expense. Credit scores are calculated using a number of factors, including your payment history, level of debt and any problems you might have had in regards to making timely payments. Credit scores range from approximately 330 to 850, but if you want to get the best interest rate on your home loan, you should strive for a rating of 720 or above.

Before shopping for a home, it is important to check your own credit rating, as mistakes that may affect you, could be made. If you do this about six months before you anticipate applying for a home loan, you will give yourself plenty of time to find and correct the mistakes, as well as time for the corrections to show up on your credit history.

If you find that your score is low, you may want to try to improve it before applying for the home loan. Paying some of your outstanding credit and reducing your debt overall can often raise your credit score greatly. Having a low credit score is likely to disqualify you from getting a home loan. A positive credit history, employment status and credit score means you can get approved for higher loan amounts and this is particularly significant when applying for a home loan.

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