Several factors contribute to whether a bank will approve your application for a mortgage, and your credit score is one of them. While it is possible to get approved with bad credit, or even no credit, here are three reasons why you want to get your score as high as possible before contacting lenders.
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Promote Lender Confidence
A mortgage lender’s primary concern is whether applicants will repay their loans in full. Because there is a correlation between credit ratings and loan default—the higher the score, the more likely the person will pay off the debt—banks will take your credit score into account when choosing to approve or deny your application. By improving your credit, you can make lenders feel more comfortable giving you money for your dream home.
Be aware, though, your score isn’t the only thing lenders consider. They also look at your credit usage and payment history. So, if your credit usage is high (over 30%) or you have late or missed payments, it’s a good idea to clean up those items before applying to better your chances of getting approved.
Score Lower Interest Rates
As noted previously, banks feel people with high credit scores have a lower risk of defaulting on loans. As a reward, banks will often offer these people lower interest rates. Even a 1% discount on current rates can lower your monthly mortgage by hundreds of dollars and shave tens of thousands of dollars off the total interest you pay on the loan.
Additionally, sometimes banks will have loan programs that only people with high credit scores can obtain. For instance, interest-only mortgages where you make payments on just the accumulated interest is typically reserved for people with good credit.
A financial adviser, such as one with https://www.theopenworkpartnership.com, can provide you with advice on the types mortgage programs available and what you can do to improve your score to qualify for them.
Get Better Homeowner’s Insurance
People mainly focus on getting approved for home loans when thinking about their credit scores. However, your credit rating can also impact your homeowner’s insurance. Many insurance companies now factor in your credit score when determining whether to provide you with a policy and how much to charge for it.
Your home loan lender will require you to fully insure the home while you have an active loan with them, which means an additional expense on top of your mortgage payment. Fixing your credit so you can qualify for a low home insurance rate ensures the monthly payment will fit into your budget.
Creditor scores are an integral part of the home loan approval process, so it would be worth investing the time and effort needed to make sure your score is the best it can be before applying for a home loan. Work with a financial advisor to develop a plan of action that suits your goals and needs.