Your credit plays a significant role in determining the interest rate of your loan and the amount you can borrow, so understanding your credit is essential.
As you receive and use credit with items such as credit cards and loans, you develop a credit history that is "scored" by three main credit bureaus. Lenders may contact one or all three of these credit reporting agencies when deciding whether or not to grant you credit.
The higher your credit score, the more favorable your interest rate and other terms of the loan will be. Essentially, a high credit score and a good credit history show the lender that you are committed to fulfilling your financial obligations, making you a worthy investment for their funds.
Of course, no one is perfect and there are ways to improve a less-than-perfect credit score. Make sure you pay your bills on time, remain below your credit limit and pay off your debt rather than shuffling it around. In time, you will see your credit score improve.
- Federal Trade Commission Consumer Credit Information
- National Foundation for Credit Counseling
Taxes & Equity
The tax advantages of owning a home may be substantial. Interest paid on your mortgage is de-ductable, which is especially significant during the initial years of certain loans because the majority of the monthly payment constitutes interest over principal. Interest paid on a home equity loan or line of credit may also be de-ductable, as are property taxes.
The creation of equity is perhaps the single most advantageous aspect of homeownership, financially speaking. In its simplest definition, equity is the difference between what your property is worth and how much you currently owe on your mortgage. Equity increases as the mortgage is paid and/or as the property enjoys appreciation.