This is a guest post by J.D. Roberts. If you'd like to guest post on this blog, click here.
A home mortgage loan is a large investment, probably one of the largest you will make in your lifetime. It stands to reason that securing a home loan should be done at the lbest mortgage rates with the most available options at your disposal. The only way to succeed in getting approved for a reasonable and affordable home loan is to do a bit of work prior to applying for the loan to ensure your credit is where it needs to be. This article will show you how to improve credit score ratings and eventually allow you to secure a mortgage you can live with.
Better Credit or Bust
Lenders have taken many risks in the last few years and as a result there was a significant crash in the home loan industry. When lenders started their recovery work, they imposed much stricter requirements for borrowers looking for a home loan. Lenders are no longer willing to take risks in lending hundreds of thousands of dollars so borrowers must be able to prove their ability to repay a loan and not be a risk for default.
Today’s lending standards require 20% of the home price as a down payment, the ability to meet the monthly mortgage amount, and the presence of a solid credit score, preferably over 730. While there is some flexibility between lenders, the majority of companies providing home loans will rely on your past credit history to make important determinations.
Understanding Home Loan APRs
Your credit score will be used first to determine your creditworthiness. It will then be used to calculate the annual percentage rate you pay for the life of the loan. Higher credit scores typically allow for lower interest rates. Lower credit scores will increase the APR as lenders will seek extra cash to cover the possibility of loan default.
Traditionally, mortgage loan APRs are relatively low as far as interest rates go. But when you consider that this interest builds for 15 or 30 years, it stands to reason you’d want to secure the absolute lowest interest rate being offered per market standards.
Example of a home loan at two different fixed interest rates:
Home loan amount: $200,000 at a 30-year fixed rate
4.5% APR versus 6.5% APR
Monthly payment: $1013.37 vs $1,264.14
Total interest paid: $164,813.42 vs $255,088.98
Not only is there a significant savings on the monthly payment of the loan at these terms, the 30 year total of accrued interest is nearly doubled with the higher rate of interest.
Improve Credit Score Starting Today
The most important thing to know about credit score repair is that it can not be done over night. It requires time and effort to boost scores despite what some agencies are advertising to consumers.
1. Deal with Existing Credit Reports
Ideally, you’ll want to first know where you stand credit-wise. You can access and pay for your credit scores online then print the documents for review. Be sure to highlight any inaccurate information and file a dispute with the credit reporting bureau. Notate a date 30 days from the mailing of your dispute to follow up with the credit bureaus if you have not heard about the results of your investigation.
2. Start Paying Everything On-Time Every Month
It is also important to appear financially stable to prospective lenders. You’ll need to be sure all of your monthly bills are paid before the due date in the months leading up to your mortgage application. This on-time payment activity has the power to boost credit scores in a relatively short period of time.
3. Cease New Applications for New Credit
Also prior to applying for a mortgage, you need to be sure you are not seeking any other type of financing. This could be perceived as an overextension of your credit and lenders may not be willing to risk lending money to someone with reckless credit behavior.
4. Apply for Your Mortgage
Within a few months of avid attention to your financial life and credit score you can see a positive impact that creates confidence in mortgage lenders. Once your credit score has been improved to meet the lender’s specific requirements, you can apply for a home mortgage loan with confidence you’ll be approved and with assurance you can afford to become a home owner.
5. Follow Up on Your Financial Life
It can be easy to put your financial life back on the backburner once your mortgage has been approved. However, with the amount of additional financial responsibility you now carry on your shoulders, it is crucial you continue on the path of good credit. As a homeowner, your credit score will dictate how much you pay for insurance premiums, what kind of job you are qualified for, and how much the utility companies will charge you to access services and products. Your credit score affects a large part of your daily financial life and it is always best to know exactly where you stand.
This guest article was written by J.D. Roberts who is a seasoned writer in personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.
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