5
Factors That Determine Your Credit Score
Credit scores range between 200
and 800. Scores above 620 are considered desirable for obtaining a mortgage.
These factors will affect your score.
1. Your payment history. Whether you
paid credit card obligations on time.
2. How much you owe. Owing
a great deal of money on numerous accounts can indicate that you are
overextended.
3. The length of your credit history.
In general, the longer the better.
4. How much new credit you have. New
credit, either installment payments or new credit cards, are considered more
risky, even if you pay promptly.
5. The types of credit you use.
Generally, it is desirable to have more than one type of credit—installment
loans, credit cards, and a mortgage, for example.
For more information on
evaluating and understanding your credit score go to
MyFICO.com.
Choices That Will
Affect Your Loan
Mortgage term. Mortgages are
generally available at 15-, 20-, or 30-year terms. The longer the term, the
lower the monthly payment if the same amount is borrowed. However, you pay more
interest overall if you borrow for a longer term.
Fixed or adjustable interest
rates. A fixed rate allows you to lock in a low rate for as long as you hold
the mortgage and is usually a good choice if interest rates are low. An
adjustable-rate mortgage (ARM) is designed so that interest rates will rise as
interest rates increase; however they usually offer a lower rate in the first
years of the mortgage. ARMs also usually have a limit as to how much the
interest rate can be increased and how frequently they can be raised. ARMs are a
good choice when interest rates are high or when you expect your income to grow
significantly in the coming years.
Balloon mortgages. Balloon
mortgages offer very low interest rates for a short period of time—often three
to seven years. Payments usually cover only the interest, so the principal owed
is not reduced. However, this type of loan may be a good choice if you think you
will sell your home in a few years.
Government-backed loans.
Government-backed loans, sponsored by agencies such as the Federal Housing
Administration (www.fha.gov) or the U.S. Department of Veterans Affairs (www.va.gov),
offer special terms, including lower down payments or reduced interest rates—to
qualified buyers.
Slight variations in interest rates,
loan amounts, and terms can significantly affect your monthly payment. For more
information please click on the mortgage calculator on the left.
10 Things a Lender
Needs From You
1. W-2 forms or business tax
return forms if you are self-employed for the last two or three years for every
person signing the loan.
2. Copies of one or more months
of pay stubs from every person signing the loan.
3. Copies of two to four months
of bank or credit union statements for both checking and savings accounts.
4. Copies of personal tax forms
for the last two to three years.
5. Copies of brokerage account
statements for two to four months, as well as a list of any other major assets
of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
6. Copies of your most recent
401(k) or other retirement account statement.
7. Documentation to verify
additional income, such as child support, pension, etc.
8. Account numbers of all your
credit cards and the amounts of any outstanding balances.
9. Lender, loan number, and
amount owed on other installment loans—student loans, car loans, etc.
10. Addresses where you lived for
the last five to seven years, with names of landlords, if appropriate.
