Do you constantly envision yourself finally settling into your dream home? Well, you’re not alone. However, much difficult it seems for the dream to turn into reality, it finally happens to many people like you. However, it can remain to be just a dream and a reality too long for you if you simply choose to wait until you save enough money to buy a house. Thanks to home loan creditors, getting your dream home can take just a few years, months, or even weeks through mortgage financing.
But then again, home loan seekers need to consider quite a few things before borrowing. Among these include the loan term, interest rates, insurance, T&C, and the maximum allowable amount. In other words, borrowers need to shop keenly while comparing deals and offers from different lenders. This is not to forget that most mortgage providers will assess your credit history before granting you an offer. For this reason, many borrowers seek to know how their credit histories are linked to the mortgage deals they get.
Well, your past track record in borrowing can improve your chances of getting a better deal when applying for a mortgage. So how exactly can your loan history help you get a better mortgage deal? Here are some terms and factors to understand.
Other Loans Affect Mortgage Lending
As earlier mentioned, loans taken before applying for a mortgage can affect how much you get, at what interest, and how long you’re expected to pay the money back. Of course, this applies to all kinds of loans, including personal loans like payday loans. If you check out this helpful link, you will notice that some lenders are adamant and more vigilant when giving mortgages to borrowers of short-term loans like payday loans. However, you can still increase your chances of getting a better mortgage deal by ensuring that:
- You always pay your loans on time
- Reduce your borrowing frequency
- Avoid short-term loans close to applying for a mortgage
Risk-Based Pricing: Credit Score
Your credit profile speaks for itself when it comes to acquiring a mortgage loan. Lenders tend to increase the cost of your mortgage based on the risks associated with your credit profile. If you have a low credit score, you are liable for a higher mortgage rate. For example, a 750-credit score can qualify you for a $200,000, 30-year mortgage at a 3.625% monthly rate. A 625-credit score for the same amount and term may translate to a 4.125% monthly rate. Since your borrowing history affects your credit score, you can get a cheaper mortgage if your loan history is more appealing.
Loan-To-Value Ratio (LTV)
This is the percentage of a property sale price. The amount you are allowed to borrow up to 95% of the actual price. For example, if the sale price is 200,000, you can only get 190,000 which is 0.95% of the loan-to-value. However, there are instances you will be limited. If your credit score is below a certain level, especially on “non-conforming” loan products lender will not give you the 95% LTV. In relation to the “Risk-based pricing” point, you are also restricted to 80% and below if your credit score is 650.
Steer Clear of Non-Performing Loans
This is expected if you have poor loan repayment habits. No lender wants to give credit to a defaulter who will only make it hard to settle a loan he took. When your loan history is unattractive, you risk the chance of qualifying for some loan products and offers. In the worst-case scenario, you may not even be able to get that mortgage. Non-conforming loans are issued by non-agency lenders who can formulate rules in their favor. The non-conformed loans may sometimes prohibit borrowers, especially if the credit scores are below the lender’s set standards.
Loan History Can Determine the Leniency of Underwriting
Before making a lending decision, mortgage lenders are very analytical and thorough. Most of them will not only look at your credit history, but they also go as far as checking your income, cash reserves, and down payments. When a weak income history is encountered, the lender may consider giving you the mortgage on conditions that your credit score is above 750. But if your credit score is 650, an unacceptable overall loan risk facilitated by high credit risk and income weaknesses will be manifested.
Private Mortgage Insurance
When it comes to this, your credit history plays a major role. The PMI insures the lender in case they default on the loan. Many lenders will require you to carry PMI if you make a down payment that is less than 20% of the purchase price. Nonetheless, the PMI takes your credit history into account by calculating the cost of that insurance. You may have to pay more for PMI in case your credit history is wanting.
When buying a home, a mortgage is by far one of the best solutions at your disposal. However, different lenders may offer different deals to different applicants. The above are just a few things you should know if you want to get a better mortgage deal as far as your history is concerned.