How Good Credit Helps the Mortgage Loan Process

What kind of home loan benefits come with having good credit? Experts from Quicken Loans were happy to provide answers …

Lower Rates and Payments
Probably the biggest advantage that comes from having a good credit score is being able to receive lower mortgage interest rates on loans. The reason you have a good credit score is because you know how to manage your bills wisely. You pay back your loans and make payments on a timely basis.

Lenders know by your credit score that you’re less of a credit risk; you’re less likely to default on your home loan, so they’re more willing to give you a cheaper interest rate. And the lower your interest rate, the lower your monthly payment. In essence, having good credit saves you money.

Less Documentation, Less Hassle
Another big advantage to having a good credit score is you are more likely to qualify for a loan where you don’t have to document your income and assets as much. These loans are known as “low or no doc loans.”

You can “go stated,” which means you have to disclose your income for the last two years, but instead of showing pay stubs and W-2s, you just show tax returns and bank statements.

If you get a “no-ratio” loan, you just declare your income without showing pay stubs, tax returns or W-2s. However, no-ratio loans still require you list your assets to reassure mortgage lender that you can still pay back the loan.

There are also loans known as “no income, no asset,” or NINA for short. NINA home mortgages only require you to disclose your name, Social Security number, the address of the property you’re buying and how much you intend to use as a down payment. This can be very useful for people who want maximum protection of their privacy.

Of course, the less documentation you provide, the higher your credit score has to be. And, of course, you need to have sufficient assets in exchange for providing less (or no) documentation. It’s also possible that the rate may be a little higher; less documentation means more risk for the lender since they’re basically taking you at your word.

The Ability to Shop Around
As a result of your good credit score, the more freedom you have to shop around - for loans and for lenders. You can shop around for more types of loans since you qualify for more. You don’t have to go with the first one you find.

It’s better to shop around for the home purchase loan that best suits your financial goals and your individual situation. For example, let’s say you just accepted a new permanent position and were moving with your family. You want your kids to grow up there and didn’t plan on moving.

You might go with a 30-year fixed-rate mortgage. But, in contrast, let’s say you wanted to invest in a rental property and needed some flexibility in payment. You might then go with an option ARM that allows you to make different types of payments at different times.

You also don’t have to go with the first lender you talk to. When you’re shopping around for lenders, you’re shopping for the best service, not the best rate. Look for a lender that caters to and cares about your needs, not their own. Find a lender that is willing to answer all your questions and go the extra mile to take care of you, even after the closing.

Having a good credit score means you have more options available to you.

You can get loans with better terms and rates and you have more available to you when it comes to types of loans. But also remember, it may be worth it to pay a little more in fees or mortgage rate if it means the lender will bend over backward to take care of your needs.