When purchasing a home, lenders will pull a credit report to determine your credit score and to see the debt you are carrying," says Kevin Tinsley. "What some people might not realize is the data on the credit report may be 1-2 months old. So, it's crucial to be aware of where your credit stands before applying for a mortgage, as that data can significantly affect your loan approval and terms."
Lenders analyze the four C's of credit—credit, capacity, capital, and collateral—during the mortgage underwriting process to assess a borrower's risk and ability to repay the loan.
Having a good credit history helps you qualify for a mortgage and, more importantly, a favorable interest rate, which can save you thousands over the life of the loan.
Capacity is crucial as it reflects how much of your monthly income you can allocate toward mortgage payments, ensuring that borrowers aren't stretched too thin financially.
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