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What is a mortgage APR?

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The APR helps you compare payments and total cost between mortgage offers. A mortgage APR is just one of the many factors to consider when shopping for a mortgage loan.

In many cases, it makes the most sense to choose a mortgage loan with a lower APR. However, sometimes a loan offer with a lower APR will require you to pay mortgage points or other fees. If you would rather use that money toward a down payment or to buy appliances and furniture for your new home, you might choose a loan with a slightly higher APR.

While the APR makes it easier to compare mortgage offers, you’ll want to weigh all of the factors involved in getting a mortgage loan. These include the size of your down payment, closing costs and money you’ll need to set aside to furnish and maintain your home.

 

What is the difference between APR and interest rate?

Explained in the simplest terms, the interest rate reflects the current cost of borrowing. The APR provides a more complete picture by taking the interest rate as a starting point and accounting for lender fees required to finance the mortgage loan.

How does my credit score affect my mortgage rate?

Good payment habits and a low debt to income ratio (DTI) can mean a lower mortgage rate. If your credit score isn’t what you want it to be, you can improve it over time.

 

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How does my credit score affect my mortgage rate?

A credit score (also called a FICO score) helps lenders determine their risk in lending you money. Your history of paying bills and your monthly debts determine your credit score, which can range from 300 (worst) to 850 (best). A score of 740 or above is generally considered “excellent.”

There are three national credit bureaus (Equifax, Experian and TransUnion) that maintain credit reports. FICO summarizes the results into three FICO scores, one for each bureau. Usually, the three scores are similar, but they may differ based on the different information collected by each credit bureau.

Finding out your credit score

For a fee, FICO will provide your credit score(s) upon request. You can also get one free copy of your credit reports from each credit bureau every 12 months via annualcreditreport.com. If you have evidence the any information in your credit record is incorrect, you are allowed to dispute this information. It is a good idea to check your credit reports regularly for errors, especially if you are planning a major purchase, such as a house.

What kind of information does my credit report contain?

Debts such as credit cards, auto loans, student loans and personal loans show up automatically in your credit reports. If creditors decide to report late payments to the credit bureaus, these also will appear on your report. If you are late on a payment, you can call the organization to ask about their policies on this and whether the organization did report your late payment.

Maintaining good credit

Making a habit of paying your bills on time is the best way to ensure your credit remains in good standing. Many creditors report past-due payments after 30 days, while others wait as long as 90 days. Healthcare providers usually don’t report late payments until much later, if at all.

A word of caution

Each time you apply for a loan or credit card, the application is reported to the credit bureaus. When lenders see multiple applications reported in a short period of time, this can discourage them from giving you a loan.

How important is my credit score?

Your credit score is very important when it comes to applying for a mortgage loan, but it is not the only factor that affects the outcome of your loan application. Lenders also consider your income, employment history, current monthly debts, size of the loan you want and what your down payment will be. If your credit score isn’t as healthy as you want it to be, you can improve it over time.

Using the Home Affordability Calculator, talking to a mortgage loan originator, and mortgage pre-qualification are a few ways to start assessing your borrowing power.

 

Home Affordability Calculator

 

What credit score do I need to get a mortgage loan?

Although there is no specific minimum score that is required to get approval for a mortgage loan, it is important to maximize your score before starting the home-buying process needed to qualify for and secure the best mortgage rate. Government-backed mortgages like FHA loans have lower credit score requirements than conventional fixed-rate loans and ARMs.

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