For most people, a mortgage is going to be one of the largest debts they manage in their lifetime. With this in mind when mortgage lenders are looking at an application they have to consider if an applicant has demonstrated a history to borrow and repay. The thicker and longer the history, means overall less inherent risk. Lenders look in depth at a credit report (Equifax/Trans Union) to get a good perspective on credit and the relationship with debt an applicant has.
Good credit and debt load are not the same thing.
Good credit means that you have credit, you use it and you show you can pay it off or keep the balances low compared to the limit trusted to you. Debt load is the amount of debt you carry on your credit card.
If you do not use credit- meaning you don’t have credit in your name you will not demonstrate that you have the capacity to borrow and repay. From a mortgage lenders perspective, not having a history of credit usage makes you extremely risky – even if you have a great job, income and down payment- see the 5 C’s of Credit for more information. Most lenders will want to see at least two trade lines (two types of credit in your name) with a minimum of two years established for each of those trades.
A large amount of debt is not only expensive, but may also reflect poorly to another lending institution who is considering lending you a large sum of money. By carrying heavy debt, a request for mortgage will far more risky to consider, as any lender will be concerned on your ability to repay an addition debt repayment.
In summary having established credit, a debt balance low compared to the issued limit and using credit on a consistent basis is the perfect recipe and presents far less risk to a mortgage lender.
At Mortgage Sisters West we offer advice, knowledge and our trusted expertise because our goal is to help you reach your goals. With the great relationships we have established with our lender partners and a vast portfolio of mortgage products , we can help you with your first purchase, to your retirement goals and everything else in between.