It's a good
time to think about the ins and outs of buying a house. One factor that can
have a big ripple effect on your ability to qualify for a mortgage is your
credit card habits.
Not sure how
plastic plays a role in your homeownership plans? Let's dig into the details.
What mortgage lenders are looking
at
Before
discussing how your credit card habits
could affect your ability to get a home loan, it's important to understand what
mortgage lenders are looking at when you apply for a home loan:
·
Your income. You'll need to demonstrate that
you have an income substantial enough to make your monthly mortgage payments.
To verify this, you'll probably need to provide tax returns and pay stubs.
·
Your credit report and score. In general, your score will need
to be above 640 to get a mortgage. The higher your score, the better your
financing terms will be.
·
Your job history. Lenders want to see a steady
employment history. If you're self-employed, you might need to jump through
some extra hoops to secure financing.
·
Your overall wealth. Your assets (retirement
accounts, property you own, etc.) will be taken into account on your mortgage
application.
·
Your other financial obligations
(your debt-to-income ratio). Banks generally like to see a debt-to-income ratio of 36% or
lower. That indicates that your monthly obligations probably aren't eating into
your ability to make mortgage payments.
Your credit card habits play a
big role in your ability to buy a home
It might not
be immediately obvious how your credit card behaviors play into your ability to
qualify for a mortgage. But these bad plastic habits will make the path to
homeownership rocky:
·
Paying bills late. If you don't pay your credit
card bills on time, your credit score will take a major hit. Thirty-five percent
of your score comes from your history with paying your bills by their due
dates, so it's important to take this point seriously.
·
Getting into debt. Racking up credit card debt will
hurt your mortgage application in two ways. First, if you're using more than
30% of your available credit on any of your cards, expect your credit score to
take a hit. Second, it will raise your debt-to-income ratio, which will make
you seem like a riskier borrower. If you have credit card debt, now is the time
to pay it down.
·
Applying for too many cards at
once. Again, this
will shave points off your credit score. If you plan on getting a mortgage
soon, don't apply for a new credit card unless you absolutely need it.
·
Delaying credit card use. Mortgage lenders like to see a
long history of responsible credit card use. Plus, 15% of your credit score
comes from the length of your credit history. If you're a credit novice,
getting a card and using it carefully will bolster a future home loan
application.
What to do
if plastic is interfering with your American Dream
If this
information is making you panic, don't worry -- there's a lot you can do to
bolster your chances of getting a mortgage. Follow these tips from the Nerds,
and you'll be on your way to realizing the American Dream:
·
Pay your bills on time. Getting your bill payments in on
time is the most powerful thing you can do to boost your credit score. Make
this a priority!
·
Apply for a credit line increase. Increasing the limits on your
credit cards will help reduce your credit utilization ratio, which will help
your credit score. Just be sure to avoid the temptation to spend more.
·
Pay down your credit card debt. This will improve your credit
utilization ratio and your debt-to-income ratio. Win-win!
·
Save up a bigger down payment. Sometimes lenders are willing to
accept a lower credit score if you bring a bigger down payment to the table.
·
Wait a bit. It takes time to save money and
improve your credit. Your best tool in the mortgage application process might
be time, so use it wisely by employing the tips discussed here.
The bottom line: Understanding how your credit
card habits affect your ability to get a mortgage is an important step on your
path to homeownership. Keep this information in mind as you get ready to look
for your new place!
There’s a
huge difference between a good stock and a stock that can make you rich. The
Motley Fool's chief investment officer has selected his No. 1 stock for 2014,
and it’s one of those stocks that could make you rich. You can find out which
stock it is in the special free report "The Motley Fool's Top Stock for
2014." Just click here to access the report and find out the name of this
under-the-radar company.
Do you want an
easy and convenient way for you to obtain access to the credit card we needed? Just
visit Cathford Group Credit Inc
for more info.
No comments:
Post a Comment