Buying a home often means taking out a mortgage. Before approving you for a loan, a lender will first review your financial life carefully to decide if they want to lend you money. That generally requires a credit check and proof of your income, savings, and spending habits.
How does your credit score affect what kind of mortgage you can get?
Your credit score is one of the factors that helps lenders determine how much you can borrow. To find out if your current credit qualifies you for a good mortgage, you should pull your credit reports from the 3 credit bureaus—Experian, Equifax, and TransUnion—and verify that all information is correct and up-to-date. AnnualCreditReport.com provides free credit reports every 12 months.
Here’s a breakdown of the factors affecting your credit score:
- Payment history: 35%
- Amounts you owe: 30%
- Length of credit history: 15%
- New credit: 10%
- Types of credit: 10%
Reviewing your credit ahead of time, can give you time to correct errors and pay down debts that could be negatively affecting your credit score. Having a good credit score may help you get a more favorable mortgage rate, which can save thousands of dollars in the long run.
Other things you’ll need to apply for a mortgage
When you apply for a loan, your lender generally asks for these financial records:
- Past tax returns as well as W-2s—or another way to document your income if you’re self-employed or a contract worker.
- At least 2 months' worth of statements for checking, savings, and retirement accounts.
Also, be aware that if you’re using money received as a gift for a down payment, you’ll probably need to show documentation of the source and timing as well.
If your lender needs a formal letter verifying your assets with Fidelity, you can request a Balance Letter online—this does require a login.