It sounds simple, but every 30, 60 or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will be one of the determining factors for which loan program you can qualify for.
This leaves borrowers with larger mortgages, but it will allow them to replace high interest rate debt, such as credit card debt, with lower-rate mortgage debt.
Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower’s credit score, especially if they’re filed in the months prior to the home loan review process.
Don’t put the savings into a volatile investment vehicle. Evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save. These accounts offer greater liquidity options allowing for an increased down payment.
Besides the obvious fact that it makes less money available for the down payment, you might increase your charge card balance or take on another installment loan thus negatively impacting your chances for a mortgage.
Lenders consider what’s known in the industry as “payment shock” when approving loans. Somebody who goes from a relatively small monthly housing payment to a significantly larger one will have more difficulty getting approved for a mortgage.
Doing this puts you in a difficult position with the seller and realtor because they don;t know if they have a qualified borrower submitting the offer. They will listen to other offers that are pre-approved before yours.
With a long-term mortgage, you may be able to invest the money saved on monthly payments and earn a higher return on your money in the long run. But that approach won’t work for people who spend any extra cash on dinner and a movie twice a week. They can force themselves into saving and accumulating equity faster by going with the shorter term and higher payment.