Will a new credit card affect my mortgage application?

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Don’t sabotage your dreams of home ownership by opening a new line of credit. (iStock)

When you are about to buy a new home, it is natural for home buyers to want to purchase furniture and decor to make it as comfortable and functional as possible. While it’s tempting to apply for a new credit card to take advantage of financing options or rewards, opening a new line of credit can impact your mortgage experience.

As today’s mortgage rates rise after hitting historic lows in January, potential buyers are eager to get the best possible rate and affordable monthly payments. A great credit score and an impressive credit history can help consumers get a lower mortgage rate. After all, credit problems and excessive debt are among the top reasons lenders may not approve a mortgage.

Debt consolidation can also help you meet your financial goals by taking any loan balances, like a personal loan and car loan, and streamlining them into one. Debt consolidation loans are personal loans that can help you pay off existing balances over time. They usually have lower interest rates and can ultimately play an important role in the mortgage approval process.

If you are ready to explore your mortgage options, visit an online mortgage broker like Credible to get personalized loan rates and pre-approval letters without affecting your credit score.

Before a mortgage is approved, what do lenders look for?

Toby Mathis, founding partner of Anderson Law Group and author of Infinity Investing: How the Rich Get Richer and How You Can Do the Same, describes what lenders look at before approving a mortgage:

  • Credit: Interest rates are based on a sliding scale based on a client’s FICO score, explains Mathis. A score between 640 and 760 is considered good, while a score of 760 and above is considered excellent for conventional funding.
  • Returned: A client must have at least two years of continuous employment in the same industry or field of work to be eligible for a conventional mortgage. “Income is based on your gross income over your W-2 income,” explains Mathis.
  • Savings: Customers are required to have at least six months of reserves in checking, savings, retirement or investment accounts to cover principal, interest, taxes, and insurance on the basis of their new loan.

Are you wondering about the interest rate to which you would be entitled? Visit an online mortgage broker like Credible to get personalized rates in three minutes, again, without impacting your credit score.

Will opening a new credit card affect my mortgage application?

Applying for a new credit card during the mortgage application process could cost you the mortgage for several reasons. Mathis explains that your credit score can drop as each new line of credit request presents itself as a big blow to your credit and can drop your score by up to 10 points.

Also, if you open a new card, your score may decrease as your amount of available credit increases.

Whether you’re a first-time home buyer or have been through the mortgage process before, understanding how bad credit or even fair credit can affect your home buying experience and your mortgage payment. Your credit score could also drop if you extend a new line of credit, as the average age of your credit account will decrease when a new card is taken into account.

“That said, lenders use several factors to decide interest rates and creditworthiness,” explains Mathis. “Opening a card may not be enough to move the needle over one of them, especially if you’ve had credit cards for a long time and have very limited use. But it would be sad if a new credit card costs you even 0.25%. on a loan. This small difference can amount to thousands of dollars over the life of your loan.

6 WAYS TO IMPROVE YOUR CHANCES OF GETTING A LOW MORTGAGE REFINANCING RATE

Before you apply for a mortgage, do you have to pay off all credit card debt?

If your outstanding debt is so large that it prevents you from qualifying for a mortgage or borrowing as much as you want, you should try to pay off as much as possible and stabilize your bank account before applying. .

Plus, paying off your debt will increase your credit score, which can help you get a low mortgage interest rate. Talk about any student loan, business loan, or car loan, which will help you improve your credit.

Loan calculators like Credible’s online student loan calculator can be very helpful in determining your remaining costs and helping you get your mortgage approved.

4 THINGS TO KNOW BEFORE REFINANCING YOUR MORTGAGE

Overall, Mathis explains that the value of paying off all credit card debt depends on your Debt-to-Income Ratio (DTI). This calculation is done by dividing your monthly debt by your gross monthly income. Although the maximum DTI ratio varies by mortgage lender and program, typically the number is between 43 and 55 percent, explains Mathis.

Your DTI also takes into account the amount you will be able to borrow for a home loan. You may be exploring your options – like a jumbo loan, variable rate loan, 30 or 15 year fixed rate loan – and you can visit Credible for comparing lenders and mortgage rates.

How soon after closing can I apply for a new credit card?

Once your file is officially closed, and not just the signed loan documents, you can apply for a credit card without any hassle, notes Mathis.

“You don’t want your DTI to change during the process at all, otherwise it can muddy the waters and jeopardize your loan,” he says.

If you’re applying for a mortgage, a new credit card might be tempting. Mortgage rates are highly dependent on your credit rating and credit history. Therefore, delaying a new card application until closing can be a good strategy to ensure you save money and have a smooth mortgage experience.

Interested in exploring your credit card options? Visit Credible at compare companies.

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.

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