How does Credit Score impact Mortgage Loans
It is no wonder that credit score is the influential factor in getting your loan approved. Not just having a credit score will fetch you good outcomes, you should maintain that in a proper form in order to get good borrowings from the lender. For the best mortgage loans
, it is important to have a good credit score.
You might be wondering about what happens if the score is not maintained on proper notes. Well, you don’t land up in jail for that, but you will definitely be denied from getting future borrowings.
You will for sure require some amount of money at some point in time, so it is better to maintain the credit score on point and get the loan approved at ease.
What are these mortgage loans?
Oh, you might have read and heard a lot about this but let me explain this in brief. Mortgage loans are nothing but mortgaging an asset or property with the lender and raise funds for any purpose. So, it basically where you put down your asset and wait until the lender analyses the property and then gives approval to your loan.
Simple, right. No, it is not that simple too. Aren’t we forgetting about the credit score which is the most important aspect of any loan?
For you, mortgaging is largely based on risk. This is because the first thing is your asset will be in the hands of the borrower, upon you defaulting the payment, the lender will have all the legal rights to take that from you. Secondly, the lenders will increase the cost, or the interest rates associated with the loan for about every risk that is linked with your credit profile.
Higher the score lower will be the interest paid and you will also enjoy favorable terms and conditions from the lender. Suppose if you have a lower credit score, then all these benefits are vice versed. You will not have a chance to enjoy such benefits.
Isn’t it weird how just a change in numbers actually affects your borrowings?
Let us see what else does this credit score takes a toll on?
Loan to value ratio
This ratio is the amount that you wish to borrow against your property. It is not like you can borrow the money worth the value of the asset, you should remember that the credit score plays the major role her. Actually, the loan amount has to be given worth the value of the asset but when the credit score is considered your loan amount will be decided based on the score that you hold.
If you have the right credit score, then the lender will consider giving 95% worth of the value but if the score is less, then the lender will have the right to give a lesser loan amount.
It is a known fact that loans are not approved if you have a low credit score (excluding a few lenders who offer bad credit loans). You will also not be allowed to take any other credits in the future unless you set your credit score on the right track.
How could we forget about credit score impacting interest rates? Interest rates will definitely skyrocket if you have a lesser credit score. Remember to lower the credit score, higher will be the interest rate, but yes, your property will work as an advantage for you in this. Lenders will charge considerable interest rates depending on the property pledged and the credit score.
Keeping all these in mind, you might now understand how important the credit score is. Work on how to improve your credit score because that is one of the important aspect lenders will look at before giving out a loan.