Determine whether or not taking out a mortgage loan will hurt your credit
Are you looking for a suitable mortgage loan? Even if you are not looking for a home loan right now, you should know the ins and outs of it, so that you are well aware of various aspects of obtaining a mortgage loan.
How a home loan affects your debt-to-income ratio
Your debt-to-income ratio is calculated on how much you earn and how much you owe to your creditors. It is better for you if your debt-to-income ratio is less than 30% and it is not good for your financial health if the ratio is 50% or more. It will also be difficult for you to take out a home loan if the ratio is more than 50%. This is because when you buy a home, you also need to make room in your budget for maintenance, taxes and other similar expenses. Therefore, make sure your debt-to-income ratio is less so that the lenders grant your mortgage loan request and offer you a suitable home loan.
How a mortgage loan helps in achieving high score
Yes, it is true that a mortgage loan can help you improve your credit score. However, this is possible only if you make the monthly mortgage payments on time. Therefore, when you take out a mortgage loan, make sure you'd be able to make the required mortgage payments on time. If you wish, you can opt for biweekly mortgage payments, which may make it easier for you to pay the required amount on time.
How a home loan can hurt your score
Just as making timely payments help you improve your credit score, similarly, late payments can reduce your score to some extent. This goes true even if you have high score. Moreover, it will hit your score more if you have a relatively high score. So, before you obtain a home loan, make sure you understand each terms and conditions, right from the interest rate to the type of payments you are opting for. If you opt for variable increase rate, then be prepared that the interest rate may increase over the loan term, even if it is low for some initial years. Therefore, analyze your financial health and be prepared, before you take out a variable rate mortgage.
When you decide to take out a mortgage loan, make sure you check out your credit score. This is because you'll be able to take out a home loan with low interest rate along with other suitable terms and conditions, if you have a good score. Therefore, before you obtain a mortgage loan, check out your credit scores from the 3 major credit bureaus and increase your score, if required. This will help you obtain a suitable home loan which you'll be able to manage properly.