Two numbers play a starring role in your ability to qualify for a mortgage and purchase a home. The first? Your three-digit credit score. The second is the total amount you owe each month in consumer debt – including your car loan, credit cards and any other installment debt. Together, these two numbers help determine if qualify for a home loan, how much of a mortgage you qualify for, and your interest rate:
- Credit score – Your credit score is a three-digit summary of the quality of your credit record. Above all, your credit score determines whether you qualify for a mortgage at all. (Minimum score requirements vary among lenders and mortgage programs.) If you do qualify, your credit score influences your mortgage rate. The higher your credit score, the lower your mortgage rate – and monthly payment.
- Total monthly debt obligation – Your credit score is important. But how much you’re committed to paying each month toward your car payment, credit cards, student loans and even child support is also crucial in the lending process. Your debt load helps lenders determine whether you have enough income to cover a housing payment along with your other monthly obligations, with enough left over for everything else, such as food, utilities and household expenses.