Educate Your Mortgage Client, So They’re Prepared
Before a homebuyer can qualify for the mortgage loan they’ll need to buy a home, they first must get their credit to the point where the mortgage company can approve them. For some, this can take longer than it does for others. But once the loan is approved, what happens to the borrower’s credit score?
Does having a mortgage improve their credit score even more, or does the added debt have a negative impact on their credit situation? Being able to explain what happens to your mortgage client will help you earn their trust and help you become the best mortgage loan officer possible.
Explain How Credit Works to Your Mortgage Clients
The first thing you should explain to your mortgage client is how credit really works. Their credit score is largely based on their ability to pay their debts. There are other factors included, but how they pay their debts is the largest contributor to their score.
Therefore, because their mortgage is a new line of credit and they haven’t yet built up a history of making payments, their credit score will initially drop. It is for this reason why new homeowners should wait at least six months before applying for any other source of credit.
Debt-to-Income Ratio will Rise
To qualify for a home mortgage, the borrower’s debt-to-income (DTI) ratio needs to be low. After obtaining it, their DTI will naturally rise, but it should still be no higher than 36%, with no more than 28% of that going toward the mortgage payment.
A Mortgage Will Improve Their Credit Mix
To build the best credit score, an individual needs to make all their payments on time and they need a varied mix of credit sources. They need both revolving accounts (credit cards) and installments accounts (car loan, mortgage).
By being approved for a mortgage, it shows that the buyer is considered trustworthy by lenders, and the fact that they have a mix of credit sources will eventually work in their favor for any future credit needs.
Mortgage Payments Must Be Paid on Time
This is a no-brainer, but it is essential for improving one’s credit after obtaining their mortgage loan. Missing a mortgage payment is one of the worst things someone can do to their credit score. Approximately 35% of your client’s credit score is their payment history, so being able to pay their mortgage and all their other debts on time is a must if they want to get their score back to pre-mortgage levels.
Conclusions
Credit is a complex and touchy topic, especially when you’re discussing the ways that having a mortgage can initially hurt your client’s credit score. But, it is important to be able to convey the truth about that happens to one’s credit after being approved for a mortgage. It prepares your client and prevents any surprises from popping up later.
Your client will appreciate your honesty and as a result, you’ll improve the chances of them being a repeat client down the road. And if you’re ready to land more mortgage clients starting now, get in touch with RGR today, to learn more about buying high quality mortgage leads now.
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