If you are planning to purchase a home soon then it is sensible to improve your credit profile. It enhances your potential to get mortgage approval and that too at low-interest rates. Lenders review your credit history to determine whether you are a safe borrower or not. Credit reports are maintained by three national credit agencies. The scores derived from these reports are used to determine the loan approval or rejection. If they approve then how much they will lend and the rate of interest to charge is also based on the credit report.
In the US, 1.6% population has an ideal credit score of 850. However, you need just 760 for getting approval on mortgages and loans. Some lenders even approve a mortgage with an average or fair credit score to borrowers with employment.
Due to the coronavirus situation, there have been layoffs and furloughs, which damaged the chances of people getting mortgage approvals. However, conventional borrowers with consistent income sources are getting a mortgage even with a 620-credit score. Remember, lenders can approve with low scores if your income checks, but with an excellent or good credit score you can tap better terms and interest rates. It will even help if you got a minimum of 20% as a down payment.
Buying a home needs financial support, so look for a reliable mortgage broker. In Bellevue, Washington Sammamish Mortgage firm has been serving the locals offering different mortgage programs with flexible approval criteria, since 1992. The professionals work with different lenders and negotiate the best terms on your behalf.
As a mortgage is a huge financial decision, it is practical to prepare your credit profile for loan application. Below are some tips to help you start preparing for acquiring positive mortgage approval and better interest rates.
Check credit reports
Learn what the current status of your credit is. Get the reports from 3 credit agencies and review which factors are affecting them. Analyze the credit reports carefully to ensure that credit history is reflected accurately. If there are small differences among the 3 credit reports don’t be surprised. For example, your TransUnion report reveals current payment, while the Experian report doesn’t. It may be because updates are made on different schedules.
Look at the –
- High account balance associated with credit limits. Pay the balances to improve your scores.
- Charge-offs, past-due accounts, and collections accounts must all be current and outstanding if any needs to be paid off.
- Credit accounts or loans, which shouldn’t be present and incorrect payment listed because of delays will need to be disputed with the relevant credit bureau instantly.
Look at the FICO score, which distills the credit report within the three-digit number. If you make improvements the score will increase as soon as the information is shared with the credit agencies. A credit score determines if your mortgage application gets approved or not. Too low credit scores pose a risk, so lenders decline their applications. Credit scores are applied to set interest rates. A high credit score means low-interest rates.
Don’t seek new credit
Every time you look for new credit or accept new debt, lenders perceive that you to be a risky borrower with a likelihood to default repaying debts. Even credit scoring models think similarly. Therefore, your credit score declines a little due to a credit check connected with a loan application. The scores will dip further if new credit is accepted. The points will recover in a few months, especially if you manage payment responsibly.
Besides, credit scores lenders even check your debt-to-income ratio. It helps them determine the amount safe to lend. Therefore, it is sensible to avoid large purchases with credit, especially when you are going to apply for a mortgage to buy a home. Large purchases are to be avoided even if you pay cash. The lender can even consider your savings during the application review. Cash reserves can be put against down payment rather than spending significantly over mortgage life.
Other ways to enhance your possibility of mortgage approval
- Save for large down payments because good savings demonstrate discipline. More cash against down payment will decrease the borrowing amount.
- Pay bills on time.
- Look for an affordable home
Working with a mortgage firm will help because they are familiar with the lender network and match you with one that suits your need.