Loans that Impact Your Mortgage Process
When getting a mortgage you need to know the ins and outs of the mortgage process and what makes up your credit score. Part of your credit score is determined by whether or not you have secured or unsecured loans. Secured loans are the types of loans where banks can regain their money if you can not pay, like homes or cars. Unsecured loans are the ones where banks can not regain any money if you cannot pay, like credit cards and student loans. Knowing the good and bad of the types of loans below will help you be prepared when going through the mortgage process.
Student Loans
Student loans can help and hurt your possibilities of getting a mortgage. If you pay them ontime over a long period of time, they help increase your credit score, showing you are reliable. However, this amount is also factored into your debt-to-income ratio which can hurt your chances if your monthly payment is high.
Importance of a Car Loan
Having an auto loan when trying to get a mortgage does not have to be a bad thing. This is because it shows credit companies that you have already passed through the required checkpoints to get the loan. Since you have passed through the more difficult criteria that is required for a secured loan, you could actually increase your credit score in some cases.
Having Payday Loans
If you have payday loans it will not affect your credit score as long as you pay them on time. The issue is that these loans have very high interest rates which cause people to not be able to pay them.
Using Another Mortgage to Help
If you have already had a mortgage and paid on time this can be helpful and make you look better to the banks. If you plan on keeping this mortgage and are currently looking to get another one for a vacation home or a rental property, the mortgage process becomes more difficult. This is because the banks will require you to have enough money to cover both of these mortgages on a monthly basis. If you generate rental income from one of the properties, the bank will not consider the rental income as part of your income for a few years. If this is a path you are preparing to go down, make sure you have a good amount of money saved.
The mortgage process take into account a multitude of factors. In order to position yourself for success, you need to know all the steps and information that will be required to get approved. It is also important to understand that not all debt is bad and some can actually help your credit score.