Credit Report Errors
Always a Buyers' Market
If you are contemplating even the slightest possibility that you plan to seek a home mortgage loan in the near future, you need to start working to repair any credit issues you have right now, no matter how far into the future your home purchase will actually be.
Importance of On-Going Credit Maintenance
With any type of financing, particularly with an investment as large as a home mortgage, there needs to be significant attention paid to the state of your credit rating. But credit scores mean a lot more in today's world than just your ability to get approved for a loan.
Credit scores now dictate many things like the rate of your insurance premium, your ability to get a job, and how much cash you need to pay in down payments and deposits for a variety of services.
When it comes to a home loan, the stakes are even higher. For this reason, all consumers should be regularly monitoring their credit histories and acting in the best interest of a solid credit score.
What a Difference a 730 Makes
Since the mortgage crisis of the last few years, mortgage lenders are taking a much closer look at applicant qualifications before approving a home loan. Some of the tighter requirements include stable job history, adequate income, the ability to pay 20% of the home purchase price as a down payment, and the ability to afford associated closing costs.
As for credit scores, lenders are looking for borrowers with a credit score of 730 or higher in order to pass along the best deals available in mortgage loans. With a high credit score, borrowers can save hundreds of thousands of dollars over the life of the loan. This is due to the much lower interest rate the borrower can get with a solid credit history. The interest rates may appear to be a small number, but the difference between 4% and 7% APRs can mean huge savings.
Here is just one example of the difference a good credit score can make for obtaining a lower APR on a mortgage loan:
Home Price: $350,000
4% APR for 30 year term = Estimated monthly payment $1,670.95
Estimated total interest paid = $251,543.27
7% APR for 30 year term = Estimated monthly payment $2,328.56
Estimated total interest paid = $488,281.14
Those with a credit score of 730 or higher prove to be much less of a risk to lenders. As a result, those with scores less than 700 may send a red flag that the possibility of default exists based on past credit performance. You can clearly see that the lower APR in the above scenario has the potential to save you more than $200,000 over the life of a loan.
How to Start DIY Credit Repair for a Better Mortgage
There is no way to stress the importance of starting early with credit repair. Once you begin taking the steps to better credit, it is vital to continue monitoring and improving your credit situation in order to save money for your overall financial life.
Here are the first-step basics for preparing your credit for a mortgage loan:
Mortgages for a home purchases will likely be the biggest financial investment you make in the course of your lifetime. It is necessary to pre-plan your finances in advance and even more important to work on achieving the best credit score you are capable of before seeking any kind of financing, especially a home mortgage loan. Requirements by lenders will only get tighter and a good credit score is an earmark of solid financial sense. It is in your best interest to be as familiar with your credit score and history information if you hope to gain a solid footing on your financial future.
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