So, you want a home loan? There are a few things that you need to know. The first thing that you need to know is that in the mortgage industry, credit is king. The primary metric that lenders use to determine your loan worthiness is your credit score. Banks have data on defaults that correlate with credit score. By knowing your credit score, the banks can know your risk profile. Based on your risk profile, either one of the three following things will happens:
(1) You will be denied a loan because your credit score is too low.
(2) Your mediocre credit score will qualify you for a high interest home loan.
(3) Your high credit score will qualify you for a low interest home loan.
Another factor that matters are your income and down payment. Income alone is never the sole determiner for getting a loan. A person can be cash rich and credit poor and not qualify for a loan, while another person might have a small income, great credit and qualify for a loan. The amount of income you have only determines how big a loan you can be expected to pay off, it will never remove the need for good credit— unless you have enough cash to purchase a home out right. Too few people can do that for it to even matter.
What have you learned so far? If anything you should have learned the importance of protecting your credit because it is the main thing that banks and lenders use to determine if you will get a loan. Another thing you have learned is that income is not enough. Also, you have learned that your credit score will determine if you qualify for a low interest loan or a high interest loan.
What should you do now? The first thing you should do is review your credit report and also receive your FICO score. Use this information to determine what is needed to improve your credit rating so that you can qualify for the best type of home loan. Once you build great credit, you will be able to qualify for a low interest home loan with great terms. Building good credit should be the first step in anyone’s plan to buy a house. A low interest loan saves you money and allows you to pay your home off earlier.