Purchasing a home is usually the largest financial decision of one’s lifetime. It’s complicated, time-consuming and requires a substantial financial outlay. Of course, an essential part of the homebuying process is obtaining a mortgage. Indeed, much of the decision-making surrounding which home to make an offer on revolves around the monthly payment: how much will it be and can I afford it? This is usually the most burning question future homeowners ask themselves. However, the mortgage payment is tied to a rate, which is connected to the borrower’s credit score. Let’s look at why it’s important to have the strongest possible credit when purchasing a home. Why is it important to have good credit when purchasing a home?Simply put, those with good credit have more options when purchasing a home. A stronger credit history reassures lenders of the borrower’s ability to pay and as such, the lender rewards the borrower with the lowest rates and the most attractive terms. A lower mortgage rate means a lower monthly payment than borrowers with weaker credit would pay. (Of course, the monthly payment also includes taxes, insurance, HOA fees and other costs.) More housing options could mean a larger home, a home in a different neighborhood, or a home with amenities not considered initially at the onset of the homebuying process. Learning how to check your credit scores to understand a more in-depth picture of your financial obligations is an essential step to improving credit and obtaining the best mortgage rate possible. How does your credit affect your buying power when purchasing a home?To illustrate the buying power of good credit, let’s see how a 100-point difference in credit scores affects one borrower’s mortgage payment. A borrower puts 20% down on a $300,000 home and applies for a 30-year fixed-rate loan of $240,000. With a strong credit score of 780, the borrower might obtain a 4% interest rate (this is an example, rates vary based on the current market). The monthly payment would amount to about $1,164 a month, not including taxes, insurance or homeowners association fees. If this same borrower’s score dropped by about 100 points to between 680-699, the mortgage rate might increase to about 4.5%. At that interest rate, the monthly payment would increase to $1,216, an extra $62 a month, or $744 per year. While this might not seem significant at first, added up over the years, it amounts to a lot. In this example, a 100-point-drop has the borrower paying an additional $25,300 over 30 years. This amount of savings could be spent making improvements to the home, such as renovating the kitchen, increasing the home’s value over the long run. As such, credit monitoring for a home loan is imperative to ensure that you have the highest possible score when you are ready to begin shopping for a mortgage. How does good credit help buy a house?Besides obtaining the most favorable rates from lenders, good credit can also save borrowers valuable time in the homebuying process. Instead of haggling with different lenders, or undergoing delays because your loan representative needs to “speak to their manager,” the process is more streamlined because your good credit quickly gets you the best possible rate. Additionally, if you’re looking to purchase in a hot market, where prices keep increasing, perhaps even by the day, having a strong pre qualification letter with strong credit will help make your offer more competitive. Not only will you reduce your risk of losing out on a hot property, but you’ll save money by not having to pay more interest. How can I raise my credit score?Because each credit agency calculates its own credit score using its own models, differences between reports can produce vastly different credit scores. Most borrowers seek the highest score possible, of course, and one that is consistent. The ability to view, understand and manage your credit is key to putting yourself in the strongest position when applying for a mortgage. Borrowers should consider utilizing a credit monitoring company that tracks movement in scores and provides helpful suggestions for actions to increase your score. Such a tool can help individuals understand the dynamics of credit and the impact of open and closed credit accounts on their overall score. The post How Credit Monitoring Services Can Help When Purchasing a Home appeared first on SmartCredit Blog. from https://blog.smartcredit.com/2021/04/30/credi-monitoring-for-home-loan/
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October 2020
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