The road to homeownership is paved with trials, but still most of us go through with it in hopes of fulfilling our lifelong dream to finally call a place “our own”. If you have never owned a home before or it’s been a few years since you have, then you are missing out on great potential credit advantages. A mortgage loan is the largest debt most people carry, and it has a huge impact on your credit score – whether good or bad.
It’s hard to know just how much purchasing a home affect our score since it varies by individual station. At the start, many consumers report a small and temporary drop in their credit score because of the difficult inquiry mortgages require. However, over time as you make payments on time and pay the loan gradually, a mortgage generally improves your credit.
Beware. Defaulting on a mortgage, having a foreclosure (or short sale), and having a deed in lieu of foreclosure will negatively impact your credit score. If you’ve experienced one or two of these situations, the only thing you can do is go through with it – keep your balances low in relationship to credit limits and paying your bills on time taking care not to miss any payments. Taking the time to create a record of regular, on-time payments in a variety of loan types will do wonders for your credit. Typically, expect about three years out of your negative credit even to be morgageable again, which will give you breathing space to rebuild your blemished credit.
Show That You Can Handle Cost of Housing Effectively
Utilizing mortgage payment for many people becomes a true test of their buying capacity. This may vary, but lenders normally like to see a potential borrower have around $15,000 for a down payment to purchase a home (sometimes more), in addition to showing a capacity to handle a mortgage payment longer – which is showing the documents for your assets and income.
Based on your financial situation, the cost of housing will work like the following: principal and interest, insurance and taxes, and in many cases mortgage insurance, also known as PITI. The affordability of home is a big separator between those who rent and those who have the capability to buy. This is why it’s a good thing to visit online listings like the properties for sale on McGrath to know your buying capacity. Also, if you have other existing debt, you need to document them with a mortgage payment as well.
Getting Your Credit Mortgage-Ready
Say you can initially afford a mortgage payment and other different housing costs, but your credit could use a boost. Whether you see a surge in your score, or see it rise over time as a result of making payments on time, you can create a better credit risk. Having a better credit will give you the opportunity to refinance and lessen your mortgage interest expense while getting rid of PMI or making it lower.
All to say that if you own a home, and steadily make a mortgage payment on time, you can earn the credit benefits that will endure throughout the period of your mortgage term.