There are typically 4 main components that make up your total monthly mortgage loan payment: Principal, Interest, Taxes, and Insurance.

The main part of the loan that everyone thinks about is the principal and interest. Your monthly principal is a fraction of the amount you borrowed from a lender to buy the home. The interest is the percentage (of the principal) that you pay over the life of the loan as a fee for the lender loaning you the principal.

The other part of your payment is the taxes and insurance. If you put less than 20% down on the property your taxes and homeowner’s insurance will likely be included in your loan payment. The mortgage company makes sure to collect an amount from you that will cover your yearly taxes and homeowner’s insurance. As they collect this money from you they put it into an escrow account until the bills are due and then make the payments for you. The lender feels like this is a little extra assurance that their investment stays insured, and property taxes are up to date.

There is also another type of insurance that could be included in your payment. Depending on your loan type and your down payment there is a chance that you will also pay a mortgage insurance premium (MIP) or private mortgage insurance (PMI). Typically, a conventional or FHA loan will require this if the borrower puts less than 20% down for the down payment. Since lower down payments can be riskier for investors, they can require mortgage insurance to help cover the loan in case it goes into default. Even if the borrower puts 0% down, VA loans do not require the borrower to pay mortgage insurance. Definitely a perk of a VA loan!

Even though credit is only one piece of what a lender looks at, the short answer is yes! Lenders also look at employment history, income, cash on hand and debt. But since credit can be a pretty weighty factor we’re going to start there.

Your credit score can be a deciding factor on whether or not you qualify for a loan and, if you do, the interest rate you’ll pay on it.

The 4 factors that lenders look at when looking at your credit are 1. Late payments 2. High credit card balances 3. Payments that went to collections 4 Length of credit history

The #1 thing that carries the most weight on your credit is paying your bills on time! Even if you’re just making a minimum payment, MAKE A PAYMENT! Set up automatic payments or reminders for yourself so that you pay your bills on time.

2nd in line is the amount you owe compared to the credit you have available to you. If all of your credit cards are maxed out that could mean that you’re over extended and could have trouble paying future debts, like the mortgage you’re applying for. If you’re credit card balances are low and paid on time monthly it shows that you’re a good money manager and less of a risk for their company.

There are places online that you can track your credit. Use those as a guide to watch your credit progress or changes. Typically, they are not the score that your mortgage lender will come up with because it is calculated differently.
It can be as much as 30-35 points different, so remember to just use it as a guide and to watch for things that may pop up on your credit that you were unaware of.

By taking positive steps of making your payments on time and keeping your debt low your credit will be ready to buy a house when you are!