Author Topic: Mortgage Rates When You've Never Had a Loan  (Read 3813 times)

ecghem7

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Mortgage Rates When You've Never Had a Loan
« on: November 02, 2013, 09:13:25 PM »
I'm wondering what mortgage rates look like for someone who has never had a loan.  Even with an excellent credit score, I've heard that lenders tend to give higher interest rates if you've never had long-term credit (like a car loan).

I'm assuming that there are a lot of people in this forum who got their first home loan without having had a car loan.  So what where your interest rates like in comparison to good rates at the time?  Is it true that someone with only credit cards in their credit report, a high credit score, no late payments, and a good amount in the bank could really get a crappy interest rate on their first home purchase?

arebelspy

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Re: Mortgage Rates When You've Never Had a Loan
« Reply #1 on: November 03, 2013, 12:21:14 AM »
Not from what I understand of how credit scores work.

Now your credit score itself might be hurt by not having that type of loan, but if it isn't, and your credit score is in fact high, then it shouldn't matter, you should get a good rate.
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avonlea

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Re: Mortgage Rates When You've Never Had a Loan
« Reply #2 on: November 03, 2013, 08:53:50 AM »
When we bought our first home, we didn't really have any credit history at all.  We hadn't even opened a credit card yet. My husband's having a debit card helped us a little.  The mortgage lender told us that if we would have had more of a credit history, we could have gotten a 4.25% rate (really good at the time).  We were given a 4.75% rate, not the end of the world but it made a difference.  Since you are using credit cards and have a good credit score, I think you'll have no problems.  Like arebelspy, I've never heard of anyone being penalized for not having had any long-term loans. 

arebelspy

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Re: Mortgage Rates When You've Never Had a Loan
« Reply #3 on: November 03, 2013, 08:58:29 AM »
Like arebelspy, I've never heard of anyone being penalized for not having had any long-term loans.

To clarify: I have heard of that penalizing your score itself (i.e. being one of the reasons listed why your score isn't as high as it could be), but if your score is high, they shouldn't care what factors are affecting it, just the final number itself.
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avonlea

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Re: Mortgage Rates When You've Never Had a Loan
« Reply #4 on: November 03, 2013, 09:03:33 AM »
Like arebelspy, I've never heard of anyone being penalized for not having had any long-term loans.

To clarify: I have heard of that penalizing your score itself (i.e. being one of the reasons listed why your score isn't as high as it could be), but if your score is high, they shouldn't care what factors are affecting it, just the final number itself.

Oh, I see.  My misunderstanding.  Sorry.

ecghem7

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Re: Mortgage Rates When You've Never Had a Loan
« Reply #5 on: November 03, 2013, 12:55:18 PM »
I was under the impression that they don't just look at your credit score, but your entire credit history.  Since mortgage lenders are allowing you to borrow WAY more money than the few hundred at a time from a credit card, I could understand them valuing long-term loans more than credit cards in determining your interest rate.  (Imagine someone using their straight A's in elementary school to convince the "bank" that they can do it in college.)  At least that's what I've heard from co-workers who are a little further ahead in life than me.

Daleth

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Re: Mortgage Rates When You've Never Had a Loan
« Reply #6 on: November 03, 2013, 04:31:37 PM »
I was under the impression that they don't just look at your credit score, but your entire credit history.  Since mortgage lenders are allowing you to borrow WAY more money than the few hundred at a time from a credit card, I could understand them valuing long-term loans more than credit cards in determining your interest rate.  (Imagine someone using their straight A's in elementary school to convince the "bank" that they can do it in college.)  At least that's what I've heard from co-workers who are a little further ahead in life than me.

To my knowledge that's not how it works (and I used to be a mortgage broker, albeit before the crash). Credit history etc. affects your score, and score affects what rates you're offered. Whenever I've applied for a mortgage in recent years (which is several times--we are landlords and also bought homes to live in twice in the last 7 years), the rates work like so. Assuming all the other numbers are constant (debt-to-income ratio, size of downpayment), if your credit score is above 740, you get X; if it's above 720 but below 740, you get Y%; if it's above 700 but below 720 you get Z%... and so on, and then there's a point in the 600s where you either can't get the loan at all or can't get it without, for instance, ponying up a larger down payment.

arebelspy

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Re: Mortgage Rates When You've Never Had a Loan
« Reply #7 on: November 03, 2013, 04:40:45 PM »
Yeah, that's not generally how it works.

Now it can work the other way - if you have a mediocre score, a local credit union might look at your whole history to make an exception for you, but you shouldn't get turned down for a loan if you have a good score.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

ecghem7

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Re: Mortgage Rates When You've Never Had a Loan
« Reply #8 on: November 03, 2013, 09:06:24 PM »
Okay.  Thanks guys!