Credit and Your Mortgage Application
Looking to buy a new home and have concerns about your credit? You’re not alone. Applying for a mortgage and getting a favorable interest rate is dependent on your credit history and credit scores. Below are three frequently asked questions, and answers to help get you on the path to buying your next home, even if you don’t have credit.
Will having a high credit card balance affect my chances of getting a favorable loan rate?
Lenders are concerned if you have the resources available to pay off your debt. If you do not, then your mortgage rate will be higher. If you have a high debt, but have been consistently paying on it, that will have a positive effect on your credit score and may help in determining your loan interest rate. Keep in mind, lenders can change your rate up until closing date, so it’s important to keep your spending in check in the weeks leading up to that date.
What happens if I have no credit? Can I still get a mortgage application?
Yes, you can! There are government-backed mortgages designed to help people with low-incomes and are first-time home buyers. These programs often times require filling out a lot of paperwork, and also demand a the buyer to put down a larger amount of money than normal lender programs. If you don’t have the time or money to get the government mortgage, you can ask family or good friends to co-sign the loan with you. Just remember – you are responsible for paying the bill each month, and your payments will affect their credit score. A final option for you is to take the time to build your own credit. Open a credit card and keep the balance below 25% of the limit, which should be paid off each month.
How can I pay off my credit card debt?
There is no one way to pay off your credit card debt. If you have a lot of debt on high-interest cards, consider consolidating your debt onto one low-interest card. The transfer usually involves a fee, but this way you are only making one payment a month. Once you’ve consolidated, the second thing you need to do is reduce your spending. Cut out whatever is not necessary – you may be surprised how much you save by not buying that latte every day! Finally, pay as much as you can each month on your bill, not just the minimum. Paying more will help you back back faster while raising your credit score.