Credit is a very important part of the mortgage qualification process because borrowers with the best credit profiles will be able to borrow against their homes at the lowest rates.
With sweeping credit card reforms coming next year, credit users will enjoy many benefits and protections never before seen, but at the same time, they may find themselves paying more for that credit and find it more challenging to come by. Understanding credit, from the perspective of obtaining a mortgage or the anticipation of obtaining one in the future is important. Here are a few of the many things that lenders look at with regard to credit, and how it may impact your ability to get a mortgage.
Balance to Limit Ratios: Lenders like to see that borrowers are able to keep balances on credit cards low, ideally under 40% of the limit. Higher balances will impact credit scores, and balances that are over the limit, versus near the limit, will have even more of an impact.
Payment History: A demonstrated ability to make payments is important, especially in the period immediately prior to applying for the mortgage. Borrowers with recent late payments will have challenges in convincing a lender that they are worthy of a mortgage if they are unable to make smaller payments on time.
Debt Ratios: The total amount of debt you are carrying in relation to your income will give the lender a picture of how well you are living within your means. Lower ratios are better.