Before approving your mortgage loan, lenders must run a background check to confirm if you are indeed creditworthy. They will check your financial abilities, credit score, income and the amount of debt you carry.
A good credit history nets you the best mortgage rate, notes Salt Lake City’s City Creek Mortgage. If your credit history is not up to scratch, take some time to improve it. Consider these tips.
1. Clean up your finance history
Your entire credit history is summed up in a three-digit figure — the credit score. A high credit score (over 700) corresponds to an excellent financial history. Having a positive credit history entails paying your credit cards and utility bills on time.
You also need to have a low debt utilization ratio on the credit cards, preferably below 30 percent. See, lenders scrutinize your financial history to have a feel of your money habits. A high credit score shows them that you have great money skills and that you pose a low risk.
On the other hand, a low credit score casts doubt on your finances, forcing lenders to take precautions. In most cases, these precautions entail levying a higher interest rate on your loan.
2. Get that down payment
Having a house down payment entices lenders to look upon your application favorably. It proves that you are indeed committed to the process of buying a home. As a reward, you will get to enjoy a much lower interest rate, in addition to a speedy approval.
Still, you need to raise at least 20 percent of the house price to keep the interest rates down. Without the required down payment, the bank requests for a private mortgage insurance, which comes at an extra cost.
For the best results when applying for a mortgage, you need to clean up your finances. Your potential lenders will peek at your financial history, and you want them to be happy with what they find if you are to qualify for a loan with amazing interest rates.