Do You Need Good Credit For A Home Equity Mortgage Loan?
When applying for home equity mortgage loan, lending institutions will look into your credit reputation
. Your credit reputation determines whether you are eligible for a loan or an extension of a loan. There are three criteria for this.
Lenders evaluate your credit history, your income, and your loan-to-value ratio. Most financial institutions allow you to borrow as much as 80% of the loan-to-value of your home, minus any outstanding mortgage debts on your property.
Your chances of getting approved for a mortgage loan have a lot to do with your credit history. Your ability to settle your obligations also determines the interests of the loan. However, it is easier to qualify for refinancing on a home you already own, than it is to get a new home loan.
Even if you have a bad credit history, you can still be approved for an equity mortgage loan, but with higher interest rate. It is wise to plan your actions ahead of time. If you want to get a low interest rate loan, work on your credit history.
Your credit score is calculated by an independent financial and credit bureau such as Fair Isaac Corporation. This institution assesses three main credit reporting agencies such as TransUnion, Experian and Equifax. Credit scores can range from as low as 300 points to as high as 850 points.
If you are an average person, your credit score is around 620. Good credit scores start at 660, and an impressive credit score is above 720. To maintain a good credit score and qualify for an equity mortgage loan, you need to pay your bills on time. You should also keep your debt as low as possible.
Scores are based on your rating in five categories. Your payment history makes up 40%. Amount owed occupies 30%, length of credit history has 15%, new credit is 10%, and types of credit used have 10%.
Improve your credit reputation by settling old and outstanding account. There are many ways to do that without accumulating unnecessary debts. Be aware that although you own the equity you have worked for in your home, the lenders are still anxious to know your ability to pay off a new equity mortgage loan.
Your income is of tremendous importance. Lenders will assess your monthly income and compare it with your monthly expenditures using the debt-to-income ratio. Debt-to-income ratio calculates how much debt you have compared to your income. Lenders want to make certain that your total debts and financial obligations do not exceed 38% of your monthly income.
The loan-to-value ratio is the amount you owe on your house against the amount value of your house. Supposing your house is worth $100,000, and you still have a $60,000 mortgage obligation, your loan-to-value is 60%.
When you get an equity mortgage loan, the value of your house is reassessed. The lender will add your existing mortgage balance to the requested equity loan, and divide the sum by your houses current market value. The quotient is the new loan-to-value ratio.
There are lenders that are willing to grant you 80% of the loan-to-value of your property, while some allow you to borrow 100% for your equity mortgage loan. The equity is the collateral you can use when you borrow against your home.
by: Rudy Silva
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