You might know that your credit score impacts lots of your buying power and experiences in life as a grown-up. Most people are not aware of just how much your credit score impacts your ability to save money on loans and purchases and just how much your credit score impacts your ability to make large purchases like a home purchase. Your credit score is used to determine the rates that you pay for insurance and can also impact credit card offers and other lines of credit that you might want to apply for as well.
If you have been thinking about buying a home, you have probably been saving money and looking at homes but this is not all that you need to do. You will also need to look at your overall finances and the money that you have going out in loan payments and other financed costs each month. This is part of how your credit score might be impacted negatively and you will need to fix any issues with your credit before you start thinking about applying for a home loan.
If you are ready to learn more about how your credit score impacts your ability to buy a house, you need to read on!
How Your Credit Score Impacts Your Ability to Buy a House
There are various key ways that your credit score is used to determine if you are going to be able to get a home loan. Banks and lenders as a whole use your credit score to help determine if you are good at handling your money and if you can be trusted to manage the payments for a loan over many years. This is why you need to be sure that your credit looks great before you start applying for a loan that will last as many years as a mortgage.
1. Interest Rates
When you do not have top-tier credit, you are considered a risk and you will be charged accordingly. Those with lower credit scores will pay much higher interest rates for loans of all kinds than those who have excellent credit. This can mean thousands of added dollars every year in cost that comes out of your pocket due to interest on your loan payments.
Interest rates are directly determined by your credit score and you will want to try and make sure that you can improve your credit score to a top tier rating before you apply for a home loan. There are even some lenders that will not offer you a loan if you have challenged credit, so this is a crucial reason to get your credit score looking great before you apply for a home loan.
2. Down Payment
If you have been planning to make a minimal down payment on your home, you will need to consider this again if you have challenged credit. When you have damaged credit, most banks will ask for a larger down payment for your home loan. This is a direct reflection of the risk that they think that you present as a borrower and it is also sometimes an effort to try to help you to lower your overall interest throughout the life of the loan.
Having a lower down payment as part of your home loan process is very helpful for most borrowers and you should make sure that you are thinking about this when you are planning out your application process. You will have a greater likelihood of a good down payment offer if you have your credit in order when you apply for your loan. Applying with a lower down payment is a great goal to have in mind when you are thinking about ways to improve your credit score.
When you have challenged credit, your lender might ask you to meet many different stipulations before they will approve the loan for your home. This can be time-consuming and might also ask you to pay off large debts like credit card debts or pay off other loans before you can apply for your home loan. This is a common way that lenders try to mitigate risk, but it can really add to the overall cost of your home purchase.
If you want to be able to simply apply for your home loan and get approved with ease, you will need to make sure that your credit is in good shape before you apply. This means that high dollar debts like credit card debts and other large financed loan amounts should be paid down before you start looking at getting a home loan. This will help you to afford your home more readily and will improve your credit significantly along the way.
Your Credit Score Can Greatly Impact Your Home Buying Experience
Making sure that you have your credit score in order before you apply for a home loan is crucial to the overall success of your loan process. You will get a better interest rate, a better down payment offer, and also be freed of many stipulations that might slow down the loan process when you have great credit. While it might not seem fair that you should have to work on your credit score just to take out another loan, the lending industry holds your credit score up as the main means of their determination about your creditworthiness.
When you have lots of debts or you have been using credit cards for many large purchases, your credit score will be greatly impacted in a negative way. It is always a good rule of thumb to maintain and manage your credit score correctly if you are going to be looking into large purchases like a home purchase. Taking care of your credit score can help you to get better rates on many other items like car insurance as well, so you will reap the benefits of this credit score improvement in many ways.
Buying a home can be easy if you make sure that your credit looks great and is in order before you start applying for home loans.