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Maximizing Your Credit Score for Better Rural Mortgage Options

Date: 
Author: 
Becky Kurschner
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In the Midwest average consumer credit scores are among the highest in the nation. That’s good news for those applying for a rural mortage, as lenders who provide country home financing prefer doing business with people most likely to pay them back.
Lenders typically look for three things when determining if a client is approved or not:

1. Credit Score: This is a number assigned to a person indicating their capacity to repay a loan. 

2. Debt to Income Ratio: This measures an individual's ability to manage monthly payments and repay debts. It is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage. 

3. Owner Equity: Mathematically, an owner's equity is the value of an asset minus the amount of liabilities against the asset.  The larger your down payment, the greater your Owner Equity will be when you purchase your rural dream home!

Of the three qualifiers, your credit score plays the most significant role in the rural mortgage approval decision. When it comes to credit scores, here are a few things lenders analyze when considering a client:

1. Payment history. Have you paid your bills on time? How many days past due? How many times past due? How long have you had credit? Bankruptcies/foreclosures? 

2. Balances owed. Try to keep your revolving balances (credit cards, lines of credit) below a 35% utilization rate. For example: your credit card limit is $5,000, keep the balance at $2,000 or less. 

3. New credit inquires. Is there a debt not accounted for on your credit report? Are you shopping around? Each time you apply for new credit, it affects your credit score.  However, applying with several lenders simultaneously as part of a mortgage application will only count as one inquiry. 

The graph below explains the components that, together, comprise your credit score. Keeping track of your credit score allows you better lending ability and puts you into a better position to negotiate.

Credit-Score-Graph.png
Anatomy of Your Credit Score:

65% of your credit score is based on two factors:
1. Payment history (not being 30 or more days late).
2. Amounts owed (The lower the better).

If your current credit score is not where you’d like it to be, there are some tactics you can use to improve your it over time.
  • Make payments on time.
  • Keep revolving debts low.
  • Don’t close or open any new accounts.
  • Keep tabs on your score through one of the free credit scoring monitoring platforms, like creditkarma.com or freecreditreport.com.
 
Typically, the stronger your credit score is, the more options you have when shopping for a rural mortgage or other major loan. Under the right circumstances, buyers with higher credit scores may qualify for lower interest rates, longer-terms, fixed rate programs or home equity lines of credit.

Ready to get started on your journey to country living? Find your Mortgage Lending Specialist!
 
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