Credit Basics for Home Loans

Buying a home, especially for the first time, makes significant demands on your credit. A home loan requires a solid credit rating, and once it takes affect, it can dramatically change some aspects of your credit. In the first place, homeowners build equity. This is an asset that contributes to their net-worth with each payment. They also establish another level of credit history and stability by making timely mortgage payments. Lastly, a mortgage is a large loan, and may impact things like your debt-to-income ratio in the first few years of the loan.

You may be able to change your interest rate if your contract is set up that way. Terms vary by provider so to find out if this is possible, talk to a professional to see if the change is allowed. Although this may be an option, if you are looking to lower your interest rate or monthly payment, refinancing your loan might be your best option.

Typically when you refinance you pay off the existing balance and then sign a new loan with new terms. When you refinance with a new loan, you incur and have to pay many or all of the same costs you paid with the original loan. You'll want to take this into consideration when deciding if you are ready to refinance.

No, there is no certain required waiting period when it comes to refinancing. You may even refinance more than once in a matter of months.

By refinancing your auto loan, you may benefit from more flexible payment terms, lower monthly payments, interest savings, or even shorten the duration of the loan. Any of these options have the possibility of saving you hundreds of dollars over the life of your loan, which could help your budget and save you money.

Yes, you can refinance your home or vehicle more than once and it may be very wise to do so if interest rates are steadily falling.

Credit bureaus do not approve you for a loan, but they do provide lenders with copies of your credit report. This is what most lenders use to base their decision on for whether they are going to grant you credit or not. Credit bureaus do not make the decision for the lenders. It is up to that lender to decide what the acceptable criteria is for them.

If you want to apply for a mortgage on a foreign property, you have to apply through a bank or other financial institution offering mortgages in that particular country. Currently, you cannot apply for a foreign mortgage (non-U.S.) at the CreditSoup web site in the United States.

Home equity is the difference between the market value of your home and the amount you have paid towards that value.

A home equity line of credit is a form of revolving credit in which your home is used as collateral.

While both are considered second mortgages, with a home equity loan all funds will be paid at closing. A home equity line of credit provides you with a credit line that you can borrow against where your home is used as collateral.

Home equity loans are a great alternative to an auto loan. You can usually get a lower interest rate with a home equity loan than you can with an auto loan. What makes it even better is that the interest you pay on a home loan may be tax deductible.

APR stands for Annual Percentage Rate. The APR on a loan includes the costs involved in securing the loan such as the interest rate, points and other related fees you will be paying annually. The APR is meant to provide you with a rate to use when comparing loans.

ARM stands for Adjustable Rate Mortgage. An ARM is a mortgage in which the interest rate is adjusted at regular intervals based on a pre-determined index.

A lender will refer to your credit report to see if you are the type of person who will repay the loan, in full, within the time specified. While searching your credit report, lenders are looking for information that suggests you pay your bills on-time. Even if your credit report has up to two late credit card payments or one late installment payment, you can still have a credit score that is good, meaning you may be likely to still get a loan. However, if your credit report shows late payments of 60 days or more, late mortgage or rent payments, or outstanding debts (such as judgments or liens), you may fall into the bad credit category which will make it hard for you to receive a loan.

A lender will also look at your existing debt to make sure that repaying the loan you are about to take on is within your means. Most lenders say that non-mortgage debt payments should not exceed 10-15 percent of your take home pay each month. If your debts are currently exceeding this percentage, you may want to pay some of the remaining debts off before you apply for another loan.

Lastly, every time someone other than yourself requests your credit report, a note of that request is made on the report itself. If there are a large number of requests within a short period of time, the lender may think that you are applying for a loan because of financial difficulty or you are taking on more than you can handle.

A draw period is the time frame during which you are allowed to use the credit available on your home equity line. When you borrow funds from your line of credit it is referred to as a draw.

A lien holder is the institution (usually a bank) that has the right to take and hold or sell the property of a debtor as security or payment for a debt borrowed from them.

The rescission period is a waiting period of three days (excluding Sundays and legal holidays), between signing your loan papers and closing your loan. This period gives you time to make sure that you really want to go ahead with the transaction, and is required by federal law for all owner-occupied refinances.

The interest rate on a loan is the cost for repaying the amount you borrowed, multiplied by a certain percentage that the bank charges you for the time it takes you to pay it back. The APR includes all the costs the bank charges you plus the interest rate and the amount of the loan. When comparing interest rates from lender to lender, you want to look at the APR as it is what lenders use to figure your monthly payments.