The Effect Your Credit Has When Buying A Home
January 30, 2019 Written by DigitalRealtyX
Unless you have a rich uncle who left you a bucket of money, most likely you will need a home loan when you buy your new home. Your credit will be one of the most important elements of the purchase. Your credit will determine not only the amount of money you can borrow, but how much it will cost you and it might even play a role in getting an offer accepted at all. Before you head out to look at homes, it’s critical that you speak to a lender and find out what kind of loan terms they can offer you based on your credit.
You’ve heard the saying, “Credit is King.” This is never truer than when you are ready to finance a home purchase. Lenders look very carefully at not only your score, but also what kind of loans you’ve had, for how long and your payment history. They will also check for judgements and tax liens. A mortgage is normally a 30-year commitment and they are loaning hundreds of thousands of dollars, so they want to make sure you are a good risk.
Your creditworthiness will make a difference in the cost of your loan in the form of interest rate. Only the most qualified borrowers will get the best rates. Lenders have strict guidelines about how much of your monthly income can be used for a house payment. Typically this is between 30-33% of your monthly gross income. This must include taxes, insurance and any homeowners association fees. If you are paying more in interest, the price of the home you can qualify for will be reduced. Credit scores also affect how large a down payment you’ll be required to pay to finance the loan.
Finally, your credit is a factor when you write an offer. Part of every offer will include a pre-qualification letter from your lender. But having a pre-qualification letter might not be enough to get your offer accepted. Most of the country is experiencing a seller’s market and properties are seeing multiple offers. Sellers and their agents will look at your credit scores as part of determining which offer to accept. With a number of offers to choose from, it often comes down to terms and credit scores as the determining factor. Sellers want to make sure that the buyer will close and that there won’t be any unexpected lender issues at the end.
Your credit worthiness is one of the most important aspects of buying a home. Knowing how much you can borrow and the cost can make a big difference in the home you can buy. There is no point falling in love with the Tudor on the hill when you only qualify for a condo on the corner. The good news is that there are concrete steps you can take to improve your score as well. Work with your lender from the very start and make sure your credit score helps you buy the home of your dreams.