Buying a home is a must for anyone in this country. However, since it is a big financial investment, so sometimes it becomes difficult to buy a home. And, if you have some credit issues, then your problems will be all the more. You'll have a hard time in convincing lenders to approve your loan application for sure.
Here are the 2 questions you must check out to know if credit issues will ruin your chances to get a mortgage loan.
Will you face problems if you don't have any credit?
It depends. As per a recent survey conducted by Bankrate.com, 63% of people belonging to the age group of 18-29, don't have any credit card at all. But does this mean that they don't have any chance to get mortgage at all? Certainly not.
There are various ways to get a mortgage loan even without credit. Your first option will be to try for a FHA loan. This is basically designed for homebuyers belonging to low income group. You need to do some paperwork and prove that you've paid your current bills already. In addition to that, you'll have to make a downpayment as well, most likely 3.5% in comparison to 20% typically charged on a traditional loan.
Your second option will be to ask somebody to co-sign for a loan, especially when you don't have any credit. The cosigner will be equally responsible for payments. So, it is your duty to explain all the pros and cons to him/her beforehand. Just let him/her know what he/she is getting into.
Will you face problems if you have huge credit card balance?
Yes. Most mortgage lenders would want to verify if you have enough cash or assets to cover your credit card debts. Lenders are very much aware of the fact that if you have huge credit card debts and less cash, then the following scenarios may happen:
(a) You would default on credit card debts
(b) You would default on mortgage payments
Lenders know this fact very well that creditors won't leave you in peace till they get back their money. They can even go to court to retrieve payments. In such a scenario, you'll try to pay off your credit card debts with whatever is left in your pocket. So, what the mortgage lenders would receive? Probably nothing for a few months.
To minimize risks, lenders would charge a high interest rate on your mortgage loan.
Is there any chance that you won't get a mortgage loan at all? Not so much. Lenders will have a look at your credit history, which plays a major role in determining your credit score. If you're one of those people who have made full payments on credit cards, then there shouldn't be any major problem. However, if you've a terrible credit record, then lenders will create manifold problems for you.
What should you must avoid before applying for a mortgage loan?
Never ever apply for a credit card when you're all set to apply for a mortgage loan. Lenders will evaluate your credit during the final stages. If you accrue debt prior to the closing date, then lenders may either reject your loan application or postpone closing date.
Bottom line
Credit does matter a lot, especially when you're applying for a mortgage. Make sure your credit is in a good condition before shopping around for a mortgage. Other than that, check out the recent trends as well to reap maximum benefits.