Mortgage readiness is the ability to take up a mortgage by assessing your financial capability. It is determined to your credit score. A credit score, on the other hand, is affected by many things. Before we can look at what can have an impact on a credit score, let us discuss what a credit score is.
A credit score is a percentage that has been derived from a mathematical equation after looking at many factors. It is meant to determine or predict whether or not you should take up a loan of sorts. It looks at your financial background and assesses if you are worth taking a loan or not. If your credit score is low, then you have a bad credit rating, and your chances of getting a loan will be low. Having a high credit score increases your chances of getting a mortgage loan. Now, let's have a look at the common types of loans to give you a basic understanding.
Types of debt or loans
Secured loans: These are types of debt for you, the borrower, which you pledge some asset in return for a loan.
Unsecured loans: These types of debt are not secured against your assets. For instance bank overdrafts. Interest rates are higher, and in case of a default in payment, the lender sues the borrower.
Open ended loans: You can borrow over and over. If you have credit card, you are more familiar with this. The type of debt you get here is similar to a credit card loan debt, and there is always a credit limit.
Closed-ended loans: These are one-time loans that once borrowed and repaid can't be borrowed again. These are just general types of debt you incur through loans, but how is debt good?
Mortgages and debt
Mortgages are more entrusted to people, including you, who know how to manage debt. You have common, everyday loans that can enhance your mortgage readiness whether you are a first time home buyer or self-employed. It's all about a good credit score
Credit card debt
Every time you make a purchase, all information on payments and repayment is stored as part of your credit history. Depending on your wisdom as a credit card user, it could either help you stretch the dollar or cause financial ruin. These types of debt provide reports for mortgage lenders. Specifics contained in the reports are your credit history, court judgments, black marks against your name in case of default in payment. As long as you keep your slate clean, your positive credit history could be a plus in securing mortgages.
The lender is interested in knowing your information before issuing you the car loan. They want to know your income, employment, assets you own, and your own going expenses.
To determine whether you can afford to make repayments on the loan or if you have too much debt to repay. Similarly, all other types of debt will require this from you.A car loan will not stop you from qualifying for a mortgage. With proper planning and prompt payment of installments, you can prove that you are reliable and a good risk for the mortgage loan.
The types of debt involved here are unsecured. You borrow money with no collateral based on your credit. People prefer them over credit cards for their lower interest rates. Personal loans can help pay outstanding debts and improve your overall responsible appearance regarding your reliability in payment. This will score you brownie points with the mortgage lender.
You well know about the associated costs that come with fees tuition books and supplies. Student loans are a kind of long-term loan. If you are consistently reliable in paying your debt on time, use it to your advantage. This good credit score will prove to the lender that you are worth giving a mortgage loan to.
This is a cash advance received by check. It may be short term and unsecured, but you have an excellent opportunity to show your commitment to paying high-interest rates on time using these types of debt.
Protect your credit score
This is the make it or break it in loans. How do you protect it?
Never miss a payment
Make payments on time
Save money for a deposit and use some of your savings to pay outstanding debts
Before we close, how mortgage ready are you? Take this short quiz.
1. Do you consider yourself good at saving?
2. Do your savings add up to 10% of your income monthly?
3. Do you have a healthy balance of debt?
4. Can you pay for the down payment comfortably?
If you answered to Yes to all these questions, you are on your way to owning your property. Mortgages should not give us nightmares anymore, use your debts to impress your lenders.