Credit Repair for Mortgages
One of the biggest things holding people back from buying a home is their credit scores. A credit score is a number that lenders use to determine how much of a risk it will be to lend you money. Therefore, your credit score is a huge influence on how lenders will handle any mortgage application. We’ll look at the different ways that credit scores can affect your mortgage.
Getting a Mortgage with Bad Credit
While it is possible to obtain a mortgage with less than perfect credit, there are several downsides to doing so. Individuals who obtain a mortgage with low credit scores will wind up paying much more for their house than people who apply for a mortgage with a better score. A difference of even a few points on your score can save you thousands of dollars over the life of your mortgage.
Higher Interest Rates
The first issue with applying for a mortgage with a lower credit score is that the interest rates you’re offered will be higher. Interest rates are how a company make a profit off of the loan. The greater the risk that you won’t be able to repay the loan, the more profit the company has to make from the loan to justify the risk. Therefore, individuals with bad credit histories will pay much higher interest rates for a mortgage than people with a better credit score.
Interest rates are incredibly important when it comes to buying a home. After all, most mortgages last 10-20 years. Therefore, even if your monthly payment is only $100 more than it would be with a better score, you’ll still wind up paying between $12,000-$24,000 more over the course of your loan.
Higher Down Payment
Another problem with a bad credit score is that it can cause companies to require a higher down payment to approve your mortgage. This higher down payment can put you in serious financial jeopardy if it wipes out your savings. When your savings are gone you don’t have anything to fall back on should some unforeseen event happen that requires a large outlay of cash. As a result, you might wind up falling behind on your bills or even defaulting on the mortgage you worked so hard to get. This tragic situation affects more people than you might think, and is one of the best reasons to improve your credit before you start applying for a mortgage.
Denied a Mortgage Because of Bad Credit
Finally, banks and lenders are more likely to deny a mortgage outright for people with lower credit scores. This can be a huge blow to your attempts to own a home of your own and stop paying rent to someone else. Moreover, you’ll lose lots of time spent going through the mortgage shopping and application process, as well as any fees and charges a company issues to process your application.
Advantages of a Good Credit Score for Mortgages
Just as there are several disadvantages to applying for a mortgage with a lower credit score, applying with a higher credit score offers several benefits for borrowers. These benefits can help borrowers save thousands of dollars while also protecting their financial position so they’re able to deal with any unforeseen events requiring a large expense.
Lower Interest Rates
The first benefit of having a better credit score when you apply for a mortgage is that you’ll be offered better interest rates. A better credit score tells the lender that you are a lower risk for default. Therefore, they’ll be willing to lend you money at a lower interest rate because they’ll decide that they would rather make less money but have you as a client than lose you to another lender.
Lower Down Payment
Another advantage of having a high credit score for mortgage applications is that you might be able to give a lower down payment on the house. This lower down payment reduces the amount of money that you need to spend up front. As a result, you can keep some savings set aside for a rainy day, enabling you to avoid the unforeseen events in life that cause financial hardship for so many different people. Sometimes the difference in the down payment can be substantial. Individuals with a great credit score might have to put down 10% of the value of their house, while those with a worse credit score might be asked for a down payment of as much as 20%.
More Likely Approval
Finally, the better your credit score, the more likely it is that your mortgage application will be approved. Knowing that you have a credit score worthy of approval can take a tremendous amount of stress out of the application process. Moreover, it opens up your options, as knowing you can get approval from multiple lenders lets you pick and choose to get the best deal for you, as opposed to accepting whatever mortgage offers you can qualify for regardless of the terms.
Credit Repair Helps Mortgages
Credit repair is an excellent way to help boost your credit score and clean up your credit history before you start shopping for a new home. Credit repair services can help you remove harmful and inaccurate entries on your report, giving your score an immediate boost. Moreover, many credit repair services can help you understand the best way to structure your credit and debts so that you can get the most out of the financial products you use. Therefore, it’s always a good idea to look into credit repair before you apply for a mortgage, the savings on the loan will more than pay for any cost of the credit repair services, and you’ll dramatically lower the amount of stress you deal with while looking for a lender. Read our Lexington Law credit repair reviews to decide if this is a good company for your situation.
Sean brings a decade worth of experience in credit repair to our company. Sean started his career working in an accounting department for a major credit card company. This was a natural fit, given his bachelor’s and master’s degrees in accounting.